If you’re looking at ways to improve your financial situation you’ll probably be focused on either finding new ways of cutting back your spending, or bringing in more cash. However, you should never overlook the possibility that you’re already owed money.

From reclaiming mis-sold PPI to simply calling in old debts, gathering in these funds can end up making a big difference to your bank balance.

Tax is one area where you may well find that, rather than owing the government, you’re in fact due a rebate from HMRC. Due to the many complications that can arise in the way tax is calculated there are a wide range of scenarios that could potentially lead to you paying more tax than you should.

In this guide we’ll look at the various ways you could find yourself overpaying and how you can reclaim money if you’ve been billed incorrectly.


In recent years millions of people have fallen foul to faults in the way tax is deducted from their pay. As a result, some people have made significant over-payments and could stand to be reimbursed with a substantial sum of money.

The majority of us pay our tax through the PAYE system. This is deducted automatically from your pay by your employer. How much is taken is determined by the tax code that applies to you. Since the introduction of new computer systems at HMRC in 2009, it’s been discovered that millions of people have been charged using incorrect tax codes. Most of these problems have been caused by failure to keep up to date information on workers’ personal circumstances.

For instance, if you’ve recently changed jobs and you’re employer fails to pass on the information, you could be taxed as if you’ve had two jobs. There have also been many cases of the system incorrectly charging people receiving work benefits such as a company car or medical insurance.

Whilst, often, if any of this information isn’t up to date it’ll be down to a communication breakdown between employers, it’s also important that you take steps to ensure the HMRC have the right information about you. For instance, if your moving house, you need to make sure you update them. Otherwise they may send a rebate to the wrong address.

As a policy, to avoid finding yourself on the wrong code, it can be worth informing HMRC every time there’s some sort of major change to your working situation. For example, if you change jobs, retire, take a break from work or leave the country, it’s important to make sure the tax authorities are given notice.

Such steps can help to ensure you don’t get put on the wrong tax code in future. To establish whether you’re currently on the right code, you first need to understand how they’re formulated;

How Can I Tell if My Tax Code is Wrong?

The first thing to do is track down your code. The easiest way of doing this is to find one of your pay slips. (If you haven’t been keeping your payslips you should start doing so.) You can also find the code on your P45 and P60 forms. If you’re struggling to track these forms down you can also obtain the code by giving HMRC a ring. If you have your National Insurance number handy and are able to answer their standard security questions, they’ll be able to give you the information.

The next step to finding out if you’re being incorrectly charged is to establish what this code means. Once you’ve tracked down your code you’ll see it comprises of a three figure number followed by a letter.

The number is determined by how much you are legally allowed to earn before you have to start paying tax. For the majority of people this will simply be the basic personal allowance which is £8,015 for the 2012/2013 tax year. However of you receive extra tax credits (such as blind person’s allowance, or maintenance payment relief) then they should be added to this. Likewise, if you are subjected to any deductions (taxable earnings that aren’t taken from you at source, such as rent paid to you, or working benefits) these will be subtracted from the figure.

They’ll then use the first three numbers of this figure as the first part of your tax code. So for example, if you just had the personal allowance with no extras or deductions, your code would start 801.

The letter refers to your personal circumstances, specifically those which might complicate your tax situation. L is the most common code, but there are many possibilities. For instance, a K code applies where your deductions outweigh you your allowances, and NT where no tax applies (usually because you’re living abroad.)

As we’ve established, the most common code is 801L. This should apply if you are under 65 and earning less than £100,000 in one job without any extra benefits. If this is your situation and you have some other code it may well be wrong.

If you are starting a job for the first time, returning to work after a lengthy absence or returning to the country you may be placed on a code of BR with no numbers if you don’t have a P45 on starting and have completed a P46 before being paid for the first time. You need to ensure you are put onto a tax code that reflects your income and situation.

If you are of retirement age you should have filled out a P161 for HMRC. If you haven’t, you could be on the wrong code. You should have a P at the end of your code in aged 65-74 and a Y if over 75. In these age brackets you also have a larger personal allowance (currently £10,500 and £10,660 respectively). If you earn more than £25,400 this allowance will start going down depending on how much you earn.

If you’re a higher or additional rate tax payer receiving a range of professional perks you may expect to be on a T code reflecting your more complex state of affairs. If you have more than one income, you’ll also have more than one tax code. If this the case, it’s likely that your second income will be taxed entirely at the base rate, resulting in a BR code, but if it amounts to enough to be taxed at higher or additional rate in of itself, you’ll get D0 or D1 respectively.

Of course, there are many factors that go into making your tax code, so it’s impossible to make general statements as to what it should be know without being familiar with an individual’s tax affairs. However, if having been given an outline of the codes work you find yourself suspecting yours is wrong, there’s a good chance you should follow up on your hunch.

Getting Your Overpaid Tax Refunded

You need to get in contact with HMRC and let them know that you believe there’s an issue with your code and why you think it’s incorrect. They will investigate and let you know if there has indeed been an error.

When they’ve established how much you’re owed they will confirm your rebate by post. (Bear in mind that they will never user email or a phone call to discuss the details of a refund. If you are contacted in this way, it may be a scam.)

For monies owed form the current tax year you will be refunded by your employer via your regular pay. For claims pertaining to previous tax years, you’ll be sent a cheque or, if you prefer, you can arrange a BACS transfer. You may even receive (extremely modest) interest on top of the money you’re owed. You can claim as far as four years back if it transpires you’ve been overpaying that long.