How to get a tax refund
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. We'll 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 of £8,105 (for example, if you only have one job paying less than £100,000 a year and no other source of income), your code should be 810L this tax year.
This code is made up of the personal allowance divided by ten followed by the letter L. So, the code is 810L because the personal allowance is £8,105. But other tax codes may apply depending on your own circumstances. There's more on this in How to make sure you're on the right tax code.
Don’t underestimate how important this is. After all, HMRC admitted it had sent out thousands of incorrect codes in 2010, so it always pays to be vigilant.
That said, you should also watch out for tax refund scams.
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.
- 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 810L 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.
That said, the 810L 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 if you're employed
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.
How to claim a refund if you're self-employed
If you've mistake on your self-assessment tax return and overpaid you've normally got 12 months from 31st January after the end of the tax year to correct it. This is known as an 'amendment'. For example, you have until 31st January 2014 to make an amendment to your 2011/12 tax return.
You can only amend your return after this date if you received your return late (after 31st October). In this case you must correct any mistakes within 12 months of the deadline for sending your return back.
If you sent your tax return on paper, you don't need to send in the whole tax return again. Just write to HMRC and attach the pages that you want to change, clearly marked 'amendment'. You'll find the address on your tax return, your tax calculation or your Self Assessment Statement.
If you sent your tax return online you can make the amendment online.
There's more information on claiming a self-assessment refund on the HMRC website.
Be aware of the time limits
Finally, you should know that the time limit for reclaiming overpaid tax has been cut back to four years. So make sure you don’t miss the opportunity to get your tax back.
This is a classic article that has been updated
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