Check your tax code as Britons overpay HMRC £8.2billion | Personal Finance | Finance

Britons are being urged to check their tax codes as soon as possible after new research has found as millions are thought to have overpaid HMRC by billions of pounds, collectively.

According to Canada Life, more than two-fifths (43 percent) of UK adults that have checked their tax code, have found they are on the wrong one.

While a fifth (20 percent) of those who were on the wrong tax code were underpaying, almost three-quarters (71 percent) were overpaying.

As per the research, those who paid too much parted with £694 more than they were supposed to on average, with one in seven (13 percent) overpaying more than £1,000. According to Canada Life calculations, this totals £8.2billion in overpayments because of wrong tax codes.

The research found only a third of UK adults were “comfortable” in knowing the process to claim back overpaid tax, which leaves 34 million unsure – many of which could be owed a rebate.

READ MORE: Martin Lewis warns millions missing out on council tax discounts up to 100%

The average taxpayer who checked their code last did so two years ago, with many attributing the reason they haven’t done so sooner to “trusting” HMRC to be taxing them the right amount, or simply not feeling the need to check.

For the 48 percent of UK adults who have checked their tax code, the most common reason was out of habit (20 percent) and cost of living pressures (14 percent).

Commenting on the findings, Andrew Tully, technical director at Canada Life, said: “Understanding your tax code is vital to ensure you’re paying the right amount of income tax. Those who are not on the right code may find themselves out of pocket.

“If it’s wrong, you may end up contributing more or less than you’re supposed to. And although overpaying means you should get a rebate – if and when it’s spotted – underpaying means you may have to pay HMRC a lump sum to make up the shortfall.”

Mr Tully then suggested that those in doubt about their tax code can check through a variety of online resources, such as salary and pension withdrawal calculators, or they can call HMRC directly.

However, he noted: “It’s worth keeping in mind there are time limits to reclaim overpaid income tax, which is four years from the end of the tax year in which you are trying to claim.

“There are very limited exceptions to this, for example, if HMRC has made an official error, so if you are in any doubt, the earlier you contact HMRC, the better.”

What is a tax code?

A tax code is used by an employer to calculate the amount of tax to deduct from an employee’s pay, and it’s usually made up of letters and numbers.

Most people who pay tax in the UK are entitled to a personal allowance and for 2022/23, this is typically 1257L.

This means the first £12,570 of a person’s earnings are free from taxation. However, the code can go up or down depending on a person’s circumstances, due to things like tax underpayments.

This makes it important for people to clarify their code with HMRC to ensure they’re paying correctly.