There are several reasons why you may be due a tax refund. For example, if your tax code is incorrect or you stop work part way through the tax year, you may have had too much tax deducted from your pay. Alternatively, you may have paid tax on savings income which was not due, or you may have simply made a mistake when filling in your tax return or paying your tax.
Obviously, if you have paid too much tax, you will be keen to get a refund. However, the procedure you will need to follow will depend on why the overpayment arose.
PAYE overpayment – incorrect code
An employee may pay too much tax under PAYE if their tax code is incorrect. For example, if an employee is on a BR code, D0 or D1 he will have tax deducted without any benefit of the personal allowance. If the employee has no other income to mop up the personal allowance, a tax overpayment will arise.
If the tax code is corrected before the end of the year, the position will right itself automatically. This is the beauty of the cumulative nature of the PAYE system. However, if the code remains wrong throughout the tax year, you will need to write to HMRC to request a refund, explaining why you think you have overpaid tax.
Tip:
If your tax code is wrong, you can query it with HMRC. Correcting the tax code will enable any resulting overpayments to be repaid automatically via the PAYE system.
Trap: Don’t delay claiming back overpaid tax. You only have four years from the end of the tax year in which to make a claim before the right to a refund is lost.
PAYE overpayment – stop work before the end of the tax year
The cumulative nature of PAYE means that credit for the personal allowance is given progressively throughout the year. The personal allowance of £10,000 for 2014/15 translates to a tax code of 1000L where a person has no adjustments to the code. A code of 1000L allows a person to earn £833 per month before any tax is due. This means that if a person only works for, say, the first four months of the tax year, they will only receive the benefit of around £3,332 of their personal allowance, rather than the full £10,000.
If a person finishes one job and is not going to start another within four weeks, any tax overpaid can be reclaimed using form P50, which is available online. However where you start a new job within four weeks within the same tax year, any tax overpaid will be refunded by your new employer via PAYE.
Trap: If you are receiving certain benefits you may not be able to get a refund straight away.
Tax on savings
If you are a non-taxpayer or on a low income and have paid tax on interest paid on your savings, you can reclaim this on form R40, which is available online on the GOV.UK website.
Tip:
Complete form R85 (available online) to get your interest paid without tax being deducted, if appropriate.
Mistakes
If you made a mistake on your tax return, which resulted in you paying too much tax, you can file an amended return to correct the mistake and complete the tax repayment section and HMRC should repay the tax. The same should happen if you pay more than is due.
Tip:
You may need to phone or write to HMRC to chase it up.
Paid by card?
If you paid your tax by debit or credit card, from spring or summer 2015 HMRC will make a refund direct to your card if the most recent payment was made by card, the refund is less than the amount paid and the refund is made within nine months of making the original payment.
Practical Tip:
If you are due a tax refund, make sure that you claim it back in the correct way within the permitted time limit.
