No one enjoys paying tax but if you overpay you could be left short. Tax mistakes are common, whether you are self-employed or PAYE, and it’s important to stay on top of how much tax you pay, to make sure it’s the correct amount. Here we look at what happens if you have paid too much and how to get it back.
Your employer or pension provider uses the tax code you are allocated by HMRC to determine how much tax you should be paying.
If your tax code is not correct you could be paying too much or too little tax so it is important to check it’s right. It’s easy to do and can save you money, and a lot of admin.
Yes, it is completely free to claim tax back from HMRC.
There are companies that offer to reclaim tax overpayments on your behalf in exchange for a cut of your rebate. However, because it is relatively easy to claim tax back yourself you should only consider using these companies as a last resort. The last thing you want is to pay someone for a job you could easily do yourself.
The exception to this is if you have very complex tax affairs, in this case, it is likely to be sensible to get advice from a qualified accountant.
Income Tax is taken from the money you earn each year, but everyone can earn a certain amount of money before paying tax, which is called your annual personal allowance.
The personal allowance for the current year is £12,570.
If you earn over £100,000, your tax-free personal allowance is gradually withdrawn. You will have no personal allowance if you earn more than £125,140. You will also need to fill out a self-assessment tax return.
However, although this system works relatively well for someone working in one full-time job with a fixed rate of pay, if you do not fit that category, it is easy to pay too much tax during the year.
It’s relatively easy to reclaim an overpayment, once you’ve figured out how much you’ve overpaid by.
Most people pay Income Tax through the PAYE (Pay As You Earn) system, which deducts tax from your salary before it is paid into your account.
PAYE uses a tax code to calculate how much tax you should pay and generally works well if you are paid the same amount every month.
However, if your pay fluctuates you could end up paying more tax than you need to.
Equally, if you are not employed for the full 12 months of the year, perhaps due to the seasonal nature of your job, unemployment or studies, you may not get the full benefit of your personal allowance and as a result pay too much tax.
To get an estimate of whether you have paid too much tax or to see if it would be worthwhile asking for a rebate, use the HMRC Tax Checker.
If you think you have overpaid tax through your self-assessment tax return you can make a claim for a refund in much the same way as through PAYE.
If you want to claim a refund or correct a mistake on your tax return within 12 months of submitting it, you can complete an amendment.
This means either writing to the HMRC detailing the changes or completing an amendment on the HMRC website.
If you need to claim for a refund from a self-assessment made over 12 months ago, you will need to make a claim in writing that includes the following information:
The tax year of your overpayment
Why you have paid too much tax
Evidence of the tax that has been paid, such as a copy of the return
Copy of your signature
How you would like to receive any repayment due
You have four years to submit a claim for a self-assessment refund and cannot claim for overpayments beyond this date.
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If you pay tax on your personal, company or state pension through the PAYE system, there is a chance that you could have paid too much.
This could be because you have been allocated the wrong tax code because your entitlement to benefits has changed or for a number of other reasons.
Reclaiming the tax you pay on your pension is similar to reclaiming income tax from employment; you will need:
Full pension and benefit payments information
You will then need to contact HMRC and request an assessment of your tax contributions and any repayment due will be sent to you through the post.
If you are exempt from paying tax on your savings, perhaps you earn below your annual Personal Allowance, you can reclaim the tax that has already been deducted from your account.
Most standard savings accounts automatically deduct tax from your interest before the money is paid into your account.
You have up to 5 years to reclaim tax paid on savings interest, which you can do by completing an R40 form and contacting your tax office.
If you have worked for several months of the year and have stopped then there is a good chance you will have paid too much tax.
If you have no plans to claim Job Seeker’s Allowance (JSA) or to work again this financial year you can complete a P50 form to reclaim your tax so you receive the full benefit of your personal allowance.
If you have had several jobs in a year there is a chance you may have paid too much National Insurance as well as too much Income Tax. If this is the case then in certain circumstances you may be able to claim back your overpayments.
There is no time limit on when you can reclaim overpaid National Insurance contributions if:
you have worked in two jobs and have made contributions for both
being both employed and self-employed resulted in the overpayment
you have not paid enough voluntary contributions to count for a qualifying state pension year
If you have wrongly paid or overpaid National Insurance for any other reason there is usually a six-year time limit on claims.
The only other exception is when your self-employed earnings fall below the annual small earning exception limit - in this case, you must apply in writing for a refund by 31st January of the following tax year.
The type of National Insurance that you need to reclaim will dictate how you should complete your claim for a refund.
Visit the gov.uk website to find the forms you need to claim.