According to TaxAid, around 15% of PAYE taxpayers pay the wrong amount of tax at source- it is a very common issue.
Owed Tax and Tax Rebates
If you haven’t paid enough income tax in the tax year, you owe money to HMRC. Paying too little tax means you will end up with backdated payments and so will face a higher tax bill the following tax year to make up what you owe.
If you have overpaid, you are owed a tax rebate, which is a refund from HMRC. You usually have to claim this refund rather than it automatically being paid back into your bank account.
Why Might You Pay the Wrong Tax?
Some common reasons for paying the wrong amount of income tax are:
- You have two jobs
- You have recently changed jobs, or changed incomes (e.g, salary increase)
- You have started receiving a pension at work
- You have received taxable state benefits which weren’t accounted for in your tax code, e.g, employment and support allowance or job seekers allowance
- You need to claim extra expenses against your tax
- Your tax code is incorrect, e.g, because HMRC has the wrong information about your income. You can click here for a description of what each tax code means and here for information about changing your tax code and what to do if you think it’s wrong
What Happens When You Pay the Wrong Tax?
If you have paid the wrong tax by the end of the tax year (5th April), HMRC will send you a tax calculation letter (P800) or a Simple Assessment letter. You may receive a P800 letter if you have paid too much or too little tax. Alternatively, you may receive a Simple Assessment letter if:
- You owe tax that can’t be automatically deducted from your income
- You owe more than £3,000 tax
- You have to pay tax on your State Pension
If you don’t receive either of these letters from HMRC but still think that you have paid too much income tax, you can claim a refund here.