What to do if My Tax Code is Wrong? How do I claim refund & update My Tax Code Online?

To claim back on wrong tax code one must immediately contact HMRC office at 0300-200-3600. Your refund will be through either cheque, payment in debit or credit card or in your bank account. To avoid paying too much tax P45 in case you are an employee and P38S in case you are a student employee.

While most people’s Income Tax is processed accurately, the likelihood of errors increases as individual taxpayers’ circumstances become more complex. Processing of Self-Assessment and PAYE have become more complex as result of changed in the make-up of the labour market, and increasing numbers of people who have multiple sources of income which may be liable to Income Tax.

The PAYE computer system was introduced in the 1980s and its records are structured around employment rather than individual taxpayers. More frequent changes in employment and higher numbers of people with multiple sources of income increase the volume of information the Department needs to process, and the various records it needs to collate to determine to check the Income Tax that is payable.

Demographic changes that affect the processing of Income Tax

Population: The UK population continues to age. The percentage of population ages 65 or over was 13 percent in 1971 and its forecast to reach 16 percent in 2011 and 23 percent by 2031.

Workforce: Patterns of employment have changed, with increases in the number of people who change jobs each year, who are employed by agencies or who have second jobs. The number of migrant workers has also increased.

Income: People may have up to eight sources of income including salaries or wages, self-employment income, investment income, State Retirement pensions, private pensions, disability benefits, other benefits and other miscellaneous income.

Wrong Tax Codes

The most frequent type of error in processing Income Tax is the incorrect calculation of tax codes. These codes are used by employers and pension providers to determine the amount of tax to deduct from their employees’ pay. In 2015/16, 63 percent of all tax-effect errors in PAYE is related to coding. The volume of coding errors doubled in 2017 to two million. This led to approximately £1.2 billion in tax overpayment and around £80 million in tax underpayments.

Check Your Tax Code/ What should your tax code be?

The tax code is used by an employer or pension provider to calculate the amount of tax to be deducted from pay or pension. A tax code is usually made up of several numbers followed by a letter. Most people in the UK who are below the age of 65 and in full-time employment have the tax code 552L. If you replace the letter in your tax code with ‘0’, you will get the total amount of income you can earn up to £10,000 before paying taxes. If your tax code is higher, it could be because you’re in receipt of various forms of tax credits or other allowances.

If your tax code is lower 52, it could be that the taxman believes you are getting a perk via your employer, such as private health insurance, and so your personal allowance is lowered to offset the cash benefit you are deemed to receive. If you’ve changed jobs and have no perks in your new job, the taxman doesn’t know this and needs to be told, as you are effectively being hit by a double-whammy of no perks and higher taxes.

How to contact HMRC about wrong tax code?

A wrong tax code could mean that you end up paying too much or too little tax. If you think you’re tax code is wrong, contact your local tax office. This is not as logical as you may think, as you could live and work in Leeds and your tax office could be in Cardiff. So your first enquiry should be directed to your employer’s payroll office, or the agency that looks after the payroll for your employer. They should be able to give you the name and reference of the employer’s tax office, the address and telephone number. Once you talk to someone at the tax office and tell them you believe you’ve been allocated the wrong tax code, they should be able to tell you how to proceed.

For more detailed information on tax codes can be found at hmrc.gov.uk and gov.uk; or contact the HMRC office at 0300-200-3600 Monday through Friday between 8:00am and 8:00pm, and between 8:00am and 4:00pm on Saturday.

How To Claim Tax Refunds?

If you have been charged more by the HMRC, then you are eligible for claiming refund on wrong tax code.

For employer – For 2017/18, contact HMRC at 0300-200-3600. For 2016/17, P800 will be posted by HMRC. Claims can be made back till the year 2013/14

Not Working – You will get a refund at the end of the year or when you start a new job after you have you have submitted the part 2 & 3 of your P45 form to Jobcenter plus. Getting a refund will also depend on Jobseekers Allowance, Employment & Support Allowance and Incapacity benefits. If you are not seeking any benefits, then you can fill up form P50.

Paid Too much Tax – Log into HMRC online account, then go to Business Account, then go to Self-Assessment and then click Request a Payment. If you write to HMRC, include your UTR number and other bank details. HMRC will pay the money back by your debit or credit card, or else deposit money to your bank account number.

Pension Holders – Call HMRC and they will send you a P800 tax calculation. They will let you know whether tax refund will be sent via cheque or will you be able to get it online. Other forms that a pension holder might need to fill will be P50Z, P53Z, P55.

You bought Life Annuity – Fill form R89 or R86 in case you have a joint life annuity. If you think that you might have missed out on reclaiming taxes where you have overpaid, then fill in form R40.

How do you get refund when you have paid too much tax?

You can get refund in three ways and the time taken to get refund will be dependent on the method by which you get refund –

Payment through cheque - It will take around 5 weeks.

Payment to credit or debit card – It will take around 5 working days.

Payment to your bank account – It will also take around 5 working days.

What if you don’t get tax refund even after claiming?

If you do not get tax refund even after claiming, you should wait for 5 weeks in case you have claimed online and 6 weeks in case you have claimed through post before contacting with HMRC.

Student Income Tax Issues

Of the numerous cases of wrong tax codes, students form the majority of sufferers of incorrect tax codes. For most students who have a part-time job throughout the year the PAYE scheme under most circumstances calculates your income tax correctly. However, students often work for only part of the year, which can lead to overpayment of tax. For example, if you have a summer job for 10 weeks and you earn £200 a week, you will earn £2,000 – which is less than the £6,475 tax threshold so you shouldn’t pay tax if these are the only earnings you have all year. But the PAYE system deducts income tax monthly on the basis that you would go on earning £200 a month all year, equivalent to a salary of £10,400 – which is more than the tax threshold so PAYE automatically deducts the tax.

How to Claim Back Overpaid Tax?

If you have paid too much tax, use the Inland Revenue Student Tax Checker at www.hmrc.gov.uk/calcs/stc.htm. There are several ways to get your overpaid tax back.

• This can be automatic if you are on the company’s payroll and continuing work into the following year, or if you take on a new job within four weeks of leaving the old one. Your tax refund should automatically be included with your wages in the following weeks / months. However, if you think you are still paying too much tax, tell your employer’s tax office why and they will say which document you need to send.
• If your job is temporary, you should ask your employer for a form P45 when you finish the job. You can claim a tax rebate after four weeks of leaving if you have returned to your studies. You will needs to fill in a form p50 ‘Claiming tax back when you have stopped working’, and take this to your Tax Office, together with your P45.

How To Avoid Paying Too Much Tax?

The good news is that you can avoid paying too much tax by following a few simple steps:

• Avoid being put on an emergency tax code (and paying the wrong amount of tax) by making sure you get a P45 from your employer when you leave a job so you can give it to your next employer.
• If your job is temporary, you should ask your employer for a form P45 when you finish the job. You can claim a tax rebate after four weeks of leaving if you have returned to your studies. You will needs to fill in a form p50 ‘Claiming tax back when you have stopped working’, and take this to your Tax Office, together with your P45.
• You can stop your bank or building society deducting tax on any interest you earn on your bank or building society account by completing a form R85 and giving it to the bank, but you need to be confident that your earning income won’t exceed £6,475 during the tax year. This is worth doing if you have a reasonable sum of money in a savings account. For example your Tuition Fee Loan and Maintenance Loan. There is no point paying tax unnecessarily.

Update your Tax Code

It is important to update your tax code especially in case of any change in employment. If you are not sure of your tax code you may be temporarily put on the emergency tax code. HMRC will update the same once you have updated your employer details. HMRC will consider updating your tax code in the following situations:

• Claim Marriage Allowance or expenses that you get tax relief on
• Income has changed
• Receiving taxable state benefits
• Starting or stopped getting benefits from your job
• Started to get income from an additional job or pension

At any point in time if you feel that your tax code may be wrong, you can always check your Income Tax online to tell HMRC about a change in your circumstances.

Meaning of Letters in Tax Code

The meaning of the letters is significant for HMRC and your employers. Below are some of the suggested meaning-

• S means you are primarily a resident of Scotland
• L means tax free allowance
• T means unless HMRC reviews, your tax code will not be changed
• M means 10% of personal allowance has been received from your spouse
• N means 10% of your personal allowance has been given to your spouse
• DO means 40% of tax will be deducted
• NT means tax is not to be paid on the given income
• BR means Basic Rate which implies that everything you earn will be taxed at 20%
• OT means no personal allowance and tax will be deducted at 40% or 45% depending on the band rate.
• K indicates that on that certain amount tax has to be paid
• X means the tax amount will be reviewed by HMRC on the end date

Also See: Polish Speaking Accountants or Polish Accountants

Also See: Romanian Speaking Accountants or Romanian Accountants

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.