The findings also reveal that nearly a third (31%) of UK adults who have examined their tax code discovered errors at some stage, with 6% realising they were on the incorrect tax code within the last year[1].

Significant overpayments to HMRC

Three-quarters (75%) of those who found they were on the wrong tax code have overpaid HMRC by an average of £689, amounting to a staggering £5.8 billion as a nation[2]. The findings also highlight that nearly one in five UK adults (18%) have never checked their tax code. Those who check their tax code typically do so once every 16 months.

Common reasons for checking tax codes

Britons most commonly check their tax code for no specific reason (19%) or out of habit (17%). Others check due to a job change (12%) or because they have previously been on the wrong tax code (8%). Among all UK adults, less than half (42%) are confident that their current tax code is correct.

Widespread confusion about tax codes

Moreover, almost four in ten (39%) do not understand their tax code, which puts them at a disadvantage from the start. Over two-thirds (69%) admit they do not know the rules around claiming back overpaid tax. Less than one-fifth have employed professional services to manage their personal taxes (18%), down from three in ten in 2023’s study (29%).

Understanding your tax code

Your tax code is composed of a series of numbers and letters, which HMRC uses to determine how much income tax you owe. For example, 1257L is commonly used when you have a single source of income through a job or pension and allows you to earn £12,570 a year (your personal allowance 2024/25) before paying income tax.

Different tax code for each income stream

You should have a different tax code for each income stream you receive, whether that is through work or via a pension. Your tax code can vary from the standard if you receive benefits from your job, such as a company car or healthcare. HMRC can also apply a different tax code if it wants to claim back the tax you’ve underpaid.

Paying the right amount of income tax

Understanding your tax code is vital to ensure you’re paying the right amount of income tax. Those who are not on the correct code may find themselves out of pocket. If it’s wrong, you may contribute more or less than you’re supposed to. So, if you haven’t checked your tax code(s) recently, now is a good time.

Checking and correcting your tax code

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 if 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.

How to pay HMRC or reclaim overpaid tax

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 know this, so 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). These letters will tell you how to pay HMRC or reclaim overpaid tax.

Time limits and proactive measures

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. If you are in doubt, the earlier you contact HMRC, the better.

Staying informed and taking action

Understanding and managing your tax code is essential. Ensure that all your details are current, and promptly inform HMRC of any changes in your circumstances. This will avoid discrepancies and potential financial strain.

Source data:
[1] Research conducted by Opinium among 2,000 UK adults, with fieldwork conducted between 19th and 22nd March 2024. On a nat rep survey of 2000 UK adults, 317 know how much money they overpaid when on the wrong tax code. 317 / 2000 - 52890000 (UK adult population) = 8383065 (shorthand 8.4 million). £689 - 8383065 = 5775931785 (shorthand £5.8 billion).

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.