Millions of people in the UK are on the wrong tax code and as a result are probably paying more tax than they need to. It happens when you change jobs, switch to part time work or become self-employed or contracted.
If you haven’t informed HMRC of your new employment status, or you haven’t got an accountant to do it for you, then your tax code won’t be updated and you’ll be paying the government even more tax! Not ideal, as if you’re anything like me you hate paying taxes.
Luckily, there are a few ways you can verify whether you’re paying the right amount of tax and see if there is an opportunity to reclaim some cash — trust me, nothing is as sweet as reclaiming money from the government!
Here are three tips to see whether it’s worth contacting HMRC:
- Check your tax code. This should be the first thing you do and is usually a good rule of thumb. As a general rule of thumb: if you’re under 65 then your tax code should be 810L, 1050P for 65-74 year olds or 1066Y for over 75′s. Of course there are different codes depending on individual circumstance, but if that’s the case then you should know whether it looks right. If it doesn’t look right, move on to step number two.
- How much tax have you paid? The next step is to check your end of year P60 to find out how much tax, National Insurance and any other contributions you’ve paid. Make a note of this figure because we’ll use it in a moment to figure out how much you might be due from the taxman.
- How much should you have paid? Use the salary calculator to find out exactly how much tax you should have paid. It uses the exact same calculations as HMRC so should be accurate to within £1. If this is different to the amount of tax you actually paid on your P60, then there’s a very good chance of a successful claim.
If after you follow these directions you think you have overpaid, compile all the evidence together (including screenshots, P60, payslips etc) and send them along with a cover letter explaining why you think you’ve overpaid to HMRC.
A typical decision will usually be within 6-8 weeks. The amount you claim will obviously depend on the circumstances, but it’s definitely not uncommon for claims to reach a thousand pounds or more.
Sidenote: be cautious of companies offering to claim on your behalf. It’s easy to do yourself and that way you avoid paying their 10-30% fee!
Ian Nuttall is a finance blogger who is a tax geek obsessed with online calculators. He recently built this debt consolidation calculator to help people in serious debt to simplify their finances. You can also find him sharing information on Google+.