PAYE refund – how to get one
Part 2. Guide for employees
An overpayment of tax happens when you have paid more tax than you were liable to pay. If you have overpaid tax you will get a tax refund. You must claim a tax refund within 4 years of the end of the year in which the overpayment arose or you will not get a refund.
There is also a possibility that you can underpay income tax. An underpayment of tax is when you have paid less tax than you were liable to pay. If you have paid too little tax you will owe Revenue the difference between what you actually paid and what you should have paid. You may not know that you have paid too little tax, but you are still responsible for paying Revenue if an underpayment of tax has occurred.
What is a P800 tax calculation?
Throughout the tax year, your employer or pension provider gives HMRC details of how much income you have received, how much tax you have paid and the value of any benefits-in-kind you have received during the tax year. Banks and building societies are also advising HMRC of interest they have paid to you on accounts held in your sole name.
Using this information, HMRC carry out an automatic reconciliation at the end of each tax year. This means that they put together all the information they have received to work out whether you have paid the right amount of tax. If HMRC think you have not paid the right amount of tax, they send you a P800 tax calculation. This calculation will show you what tax HMRC think you should have paid. P800s are generally sent out between June and October after the end of the tax year in question.
You must always check your P800 tax calculation carefully, as HMRC may not have all the information they need to calculate your tax correctly, or they may have inaccurate information.
An underpayment will remain on your tax record with HMRC until it is paid. P800 will show if you have underpaid tax. It will also inform you how the underpayment will be collected. Usually, you will not pay money directly to HMRC. The easiest way is to collect the underpayment through current wages reducing personal allowance and increasing tax deductions.
If you have a large underpayment which cannot be easily repaid through PAYE in current year, you can arrange to pay directly by BACS, telephone or online. P800 will explain how to make a payment. You can pay the total amount in one payment or in instalments. You will need to contact HMRC about repaying the underpayment.
Outstanding tax due to HMRC can incur interest and penalties. If you refuse to repay tax that is due HMRC can take you to court.
When might I overpay income tax on employment income?
You might have paid too much tax if:
- you started a new job and had an emergency tax code for a while
- your employer was using the wrong tax code
- you only had a job for part of the tax year
- you had more than one job at the same time
- you are a student and you only worked during the holidays
- other income which HMRC tax through your tax code has reduced
- you stopped working and had no taxable earning or benefits for the rest of the tax year
- your circumstances changed – for example, you changed from full-time to part-time work
When might I overpay income tax on pension income?
You might have paid too much tax on your pension income if:
- your pension provider was using the wrong tax code
- your taxable income has reduced
- the amount of state pension in your tax code was wrong
- you had more than one source of PAYE income, for example more than one pension
- you paid too much tax on a pension lump sum
If you have overpaid tax, you can claim overpayment. HMRC will refund you the overpayment by either by:
- bank transfer: your refund will be transferred directly to your bank account
- cheque: you will receive a cheque for the amount overpaid by post
What can be claimed on a PAYE Tax Refund?
The following tax refunds can also be claimed, but if it’s not on the list, please get in touch anyway, as we are sure we can help:
- Uniform Expenses
- Car Mileage Allowance
- Tools Expenses and/or Specialist Clothing Allowance
- Working from Home Expenses
There are many reasons that you could overpay tax through PAYE, such as being on the wrong tax code or when switching employers within a tax year. But because of the complexity of the UK tax system, knowing if you are eligible for a tax back is not as straightforward.
This underlines the importance of hiring a tax professional to help clear any confusion you might have. Sure, tax payments may be automatically deducted through PAYE, but what are the odds that there are a few discrepancies here and there?
If you are in doubt or have any questions, please feel free to call Outsourced ACC team on 0208 249 6007, we are more than happy to help you.
Written by Irina Stucere