How to get a tax refund

by Jane Baker on 27 June 2010  |  13 comments
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We all hate paying tax but don’t, whatever you do, pay more of it than you need to.

Can you really be sure you’re paying exactly the right amount of tax?

If you don’t know the answer to this question, then this article is for you. I’m going to explain how to check that deductions from your salary are as they should be, and how to claim a tax refund if they’re not.

Check your P60

If you have tax deducted from your earnings, or pension, through the PAYE (pay as you earn) system, you should receive a P60 from your employer, or pension company, every year. This document outlines your income and deductions for the tax year just ended.

If you have more than one source of employment, you should get a P60 from each employer. The same goes for people who have more than one pension.

You should always check your P60s thoroughly to make sure your tax code, and any tax which has been deducted, is correct. For example, if you’re under 65 and eligible for the basic tax-free personal allowance only, your code should be 647L this tax year (before the emergency budget).

This code is made up of the personal allowance divided by ten followed by the letter L. So, the code is 647L because the personal allowance is £6,475. But other tax codes may apply depending on your own circumstances. Visit the HMRC website to help you understand what your code should be.

Don’t underestimate how important this is. After all, HMRC admitted it had sent out thousands of incorrect codes earlier in the year, so it always pays to be vigilant. You can find out more about this blunder in Claim £1,300 of your tax back.

Emergency codes

If your employer or pension company hasn’t been informed of your tax code by HMRC, they may have put you on what’s known as an emergency code, which could mean paying more tax than you need to. There are several reasons why an emergency code might apply. For example;

• You have started a new job, but didn’t get a P45 from your previous employer.
• You have started your first job after the beginning of the tax year, and you haven't received any taxable state benefits, state pension or a company pension.
• You have started a new job but you have had another job(s) or received taxable state benefits during the year.
• Your tax code has changed during the year. This could happen if you started to receive company pension benefits or claim the state pension, for example.
• You have started a new job but you were previously self-employed.

An emergency code usually ensures you receive the basic personal allowance, and therefore means you will earn some of your income tax-free. But it doesn’t make any provision for other reliefs or allowances you may qualify for. The emergency code is also 647L which is a bit confusing since it's exactly the same as the code for taxpayers who are entitled to the basic personal allowance only.

Recent question on this topic

• fodigie asks:

  As a student, how can you ensure you don't pay any tax on your part time earnings?

  • 
    SoftwareBear answered "you have to pay tax ... but you can claim it back from www.hmrc.gov.uk at the end of the tax year..."
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    MikeGG1 answered "If you are in regular employment with one employer, you should get a tax code after a month or..."
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That said, the 647L emergency code may also be followed by W1 (week 1) or M1 (month 1) which makes it easier to identify. This part of the code indicates that each week or month is being dealt with separately to give you an equal amount of net pay each time you receive your salary. But this doesn’t take account of any tax you might have paid earlier in the tax year, which could mean you’re paying too much.

If you think you’re paying emergency tax, check with your tax office and ask them to send you and your employer the correct tax coding. This will enable the right amount of tax to be deducted from your salary going forward. This will also give you the chance to claim any overpaid tax from HMRC.

How to claim a refund

Unless you pay your tax bill via self-assessment, there isn’t a specific form you can use to claim a refund if you think you have paid too much tax on your earnings or pension income. That said, if you find you have paid tax on your savings interest even though you’re a non taxpayer, you can reclaim it using form R40. (To ensure you receive gross interest from now on, send form R85 to all the banks and/or building societies you have savings accounts with.)

For a PAYE tax refund, you’ll need to contact HMRC in writing. It’s a good idea to mark your letter with ‘Repayment Claim’ so it can be prioritised.

Your claim should include the following information:

• Your personal details including your name, address, national insurance number and your PAYE reference shown on your pay slips.
• A rundown of your employment history including each of your PAYE reference numbers for different employers (if applicable), the dates when you were employed, your earnings, and the total amount of tax deducted.
• Explain why you think you’re entitled to a refund.
• Enclose copies of your P60s and P45s.
• Provide your bank details. If your refund can be transferred to your bank account it may speed the process up.
• Don’t forget to sign and date your letter.
• Keep a copy of your letter and arrange for proof of posting from the Post office.

In theory, your claim should be resolved within four weeks, but delays can occur particularly if security checks are required before a repayment can be granted. Be prepared to chase HMRC up if necessary. Keep a log of any calls you make to them including the date and time you called and the name of the person you spoke to, plus a summary of the conversation along with any advice you were given by the tax officer. This may come in handy if there’s a dispute over your claim further down the line.

Be aware of the time limits

Finally, you should know that the time limit for reclaiming overpaid tax is due to be cut from from almost six years to just four in 2012. However, for self-assessment taxpayers, the reduction has already taken place. So make sure you don’t miss the opportunity to get your tax back.

More: The Budget: Winners and Losers | 7 ways for the over 50s to pay less tax