According to research[1], almost a third of UK adults who have checked their tax code (31%) have found that they have been on the wrong one at some point. Additionally, one in six (15%) UK adults do not know if they are on the right tax code.
The findings also reveal that nearly a third (31%) of UK adults who have examined their tax code discovered errors at some stage, with 6% realising they were on the incorrect tax code within the last year[1].
Three-quarters (75%) of those who found they were on the wrong tax code have overpaid HMRC by an average of £689, amounting to a staggering £5.8 billion as a nation[2]. The findings also highlight that nearly one in five UK adults (18%) have never checked their tax code. Those who check their tax code typically do so once every 16 months.
Britons most commonly check their tax code for no specific reason (19%) or out of habit (17%). Others check due to a job change (12%) or because they have previously been on the wrong tax code (8%). Among all UK adults, less than half (42%) are confident that their current tax code is correct.
Moreover, almost four in ten (39%) do not understand their tax code, which puts them at a disadvantage from the start. Over two-thirds (69%) admit they do not know the rules around claiming back overpaid tax. Less than one-fifth have employed professional services to manage their personal taxes (18%), down from three in ten in 2023’s study (29%).
Your tax code is composed of a series of numbers and letters, which HMRC uses to determine how much income tax you owe. For example, 1257L is commonly used when you have a single source of income through a job or pension and allows you to earn £12,570 a year (your personal allowance 2024/25) before paying income tax.
You should have a different tax code for each income stream you receive, whether that is through work or via a pension. Your tax code can vary from the standard if you receive benefits from your job, such as a company car or healthcare. HMRC can also apply a different tax code if it wants to claim back the tax you’ve underpaid.
Understanding your tax code is vital to ensure you’re paying the right amount of income tax. Those who are not on the correct code may find themselves out of pocket. If it’s wrong, you may contribute more or less than you’re supposed to. So, if you haven’t checked your tax code(s) recently, now is a good time.
If you think your tax code is wrong, you need to contact HMRC directly. Your employer (if relevant) won’t be able to do this for you. You can check if HMRC has your correct, up-to-date information online. If you’re on the wrong code, you might need to update your employment details, or whether you’ve had a recent change in income.
If you have found you have been on the wrong tax code, you may be owed a rebate, or you may owe money to HMRC. HMRC may already know this, so you should be sent a tax calculation letter (a P800 form) or a Simple Assessment letter by the end of the tax year (April 5th). These letters will tell you how to pay HMRC or reclaim overpaid tax.
You will only be sent one of these forms if you are employed or receive a pension. Remember, 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. If you are in doubt, the earlier you contact HMRC, the better.
Understanding and managing your tax code is essential. Ensure that all your details are current, and promptly inform HMRC of any changes in your circumstances. This will avoid discrepancies and potential financial strain.
To discuss any of the issues raised in this article, please contact us. Further information can also be found at gov.uk.
Source data:
[1] Research conducted by Opinium among 2,000 UK adults, with fieldwork conducted between 19th and 22nd March 2024.
[2] On a nat rep survey of 2000 UK adults, 317 know how much money they overpaid when on the wrong tax code. 317 / 2000 – 52890000 (UK adult population) = 8383065 (shorthand 8.4 million). £689 – 8383065 = 5775931785 (shorthand £5.8 billion).
This article does not constitute tax or legal advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice.
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