Personal Finance

Check your tax code, experts urge, as £689 overpaid on average

UK workers have been urged to check they are on the right income tax code after research suggested an average £689 was overpaid by each person on the wrong code.

Almost a third (31%) of UK adults who checked have found they were on the wrong tax code at some point in their working life, Canada Life estimates.

The financial services company found six percent of people questioned last year had been on the wrong tax code in the last 12 months.

Of those who were on the wrong code, 75% had been overpaying an average of £689 - equivalent to £5.8 billion across the nation.

Britons can backdate claims for overpaid income tax by up to four years meaning, in the year 2024/25, claims can be made up to 2020/21.

HMRC can notify people they are entitled to rebates but it is up to the individual to claim it.

The most common tax code is 1257L - which means you can earn the full personal allowance of £12,570 a year before you start paying income tax. It is applied to people who have their full tax free entitlement and one source of income.

Tax codes can change for those who have work benefits such as healthcare, or if you've underpaid and need to pay extra.

What does tax code mean?

The numbers in your tax code relate to how much tax free income you get in that tax year. This is based on your personal allowance, income you've not paid tax on, and the value of any company benefits.

There are several different letters than can be added to the end of a tax code. The most common are:

LetterMeaning
LStandard tax-free Personal Allowance
MMarriage allowance - you've received a 10% transfer of your partner's Personal Allowance
NMarriage allowance - you've transferred 10% of your Personal Allowance to your partner
TYour tax code includes other calculations to work out your Personal Allowance
0TYour Personal Allowance has been used up or you've started a new job and your employer doesn't have the details to give you a tax code yet.
BRAll your income for this job is being taxed at the basic rate (20%). This is usually because you have more than one job or pension.
D0All your income for this job is being taxed at the higher rate (40%). This is usually because you have more than one job or pension.
D1All your income for this job is being taxed at the additional rate (45%). This is usually because you have more than one job or pension.
NTYou're not paying any tax on this income

For more tax codes, click here.

If you're unsure what your tax code is, you can check online here.

John Chew, tax and estate planning specialist, Canada Life said: “If you think your tax code is wrong, you need to contact HMRC directly. Your employer (if relevant) won’t be able to do this for you.

"You can check HMRC has your correct, up to date information online. If you’re on the wrong code you might need to update your employment details, or whether you’ve had a recent change in income.

“If you have found you have been on the wrong tax code, you may be owed a rebate, or you may owe money to HMRC. HMRC may already be aware of this in which case you should be sent a tax calculation letter (a P800 form) or a Simple Assessment letter by the end of the tax year (April 5th), which will tell you how to pay HMRC or reclaim overpaid tax. You will only be sent one of these forms if you are employed or receive a pension.

“Remember, there are time limits to reclaim overpaid income tax, which is four years from the end of the tax year in which you are trying to claim so if you are in any doubt, the earlier you contact HMRC, the better.”

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Helen Barnett

Helen is a journalist, editor and copywriter with 15 years' experience writing across print and digital publications. She previously edited the Daily Express website and has won awards as a reporter. Read more here.

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