Martin Lewis said millions could be in the wrong tax code and could be liable for thousands of pounds
Martin Lewis has warned millions of workers in the UK they could be on the wrong tax code and could have to pay back thousands of pounds.
A reader contacted Lewis and explained how she managed to claim £5,000 after being on the wrong tax code for four years.
What are tax codes?
Tax codes are used by your employer to determine the amount of tax taken from your salary or pension.
Your tax code is a combination of numbers and letters representing how much you can earn before you start being taxed.
Everyone on the PAYE system should get one.
The most common code for the current tax year is 1257L for people who have a job or a pension.
If you use the wrong tax code, you could pay too much or too little tax each month.
In the latest MoneySavingExpert email, Martin warned: “Millions of people get it wrong every year, and the rules say it’s YOUR RESPONSIBILITY to check everything is correct (not your employer or HMRC’s. ).”
How to check your tax code
Looking at your payslip or P45 is the quickest and easiest way to check your tax code.
You can also ask your human resources department if they can give you your tax code.
The GOV.UK website has a dedicated web page for people to check their tax code. To verify it online, you will need to register for a government gateway ID.
For anyone on the more common 1257L tax code, this means you can earn £12,570 before being taxed in the 2021/22 tax year.
Check if you are on the right tax code
MoneySavingExpert has a free tax code calculator to get a rough idea of how accurate your current tax code is.
To check yours, you’ll need to enter your pre-tax income and your current code, and the calculator will tell you if you’re probably on the right code because no calculator can tell you for sure.
If you recently started a new job or haven’t given your employer enough information about your situation, you may be on the wrong tax code.
How to claim a tax refund if you overpaid
Depending on how much and for how long you overpaid, you could potentially claim thousands of pounds.
By calling 0300 200 3300 to contact HMRC you can research the best course of action for you, or you can talk to them online via their live chat service.
If your tax code is wrong for the current year, your employer will be contacted by HMRC and you should recover any tax due on your next payslip.
You can claim for up to four years until the 2017/18 tax year.
If you think you have been overpaying for much longer than that, you can contact HMRC to investigate.
What happens if you paid less tax
If you realize you have paid less tax, you will owe HMRC money.
To avoid refunding a larger sum, it is best to contact them immediately and let them know.
You can arrange a payment schedule to suit your situation.
Since it wasn’t your fault, you could try to have the tax written off, although that’s not a guarantee.
This could be done by applying for a so called ‘Extra Statutory Concession’ or an A19 from HMRC.
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