Q1: Am I paying the right tax? Can I get a tax refund? This section is designed to help employees check if their tax is correct. You may either go through the section from the beginning, or if you have an idea what may be wrong, you could select the most appropriate section from the links below. You may need to look at a few sections to get a complete picture:
a) The basics – what you need to know Employment rights; payslips; Leaving and end of year forms P45 and P60; How PAYE should operate; Checking if your PAYE deductions are right; What to do if the employer is not operating PAYE Correctly Checking if your tax is correct for earlier years Emergency tax; BR codes; What should happen when you change jobs and what to do if things go wrong Sometimes errors in a PAYE code mean that you have underpaid tax. What are your options?
b) How to check your tax c) Is my tax code wrong? How do I get a tax refund? d) Starting a new job – getting your code correct e) What happens if I have underpaid tax by mistake? f) I left my job and have not been receiving taxable state benefits – can I get a tax refund? g) I want to make a claim for expenses h) How far can I go back in claiming tax refunds? i) I am leaving the UK, can I get a tax refund?
Form P87; claiming expenses as an employee;
To find out more about this, you need to look at a different FAQ : Q3: I am leaving/have left the UK – what do I do about my tax? Can I get a tax refund? Accessible on this link http://www.taxaid.org.uk/faqs.cfm?articleid=93.
j) Further advice if your query not covered by this section
Q1: Am I paying the right tax? Can I get a tax refund? a) The basics – what you need to know If you are an employee you should receive payslips. These should show your gross salary (the amount before tax) and the income tax that has been deducted. You should also get a form P45 when you leave, and a P60 at the end of each tax year. For information about your employment rights see the Acas website (Advisory, Conciliation and Arbitration Service) http://www.acas.org.uk. Is your employer operating PAYE correctly? If you do not get these forms/information, your employer may not be operating PAYE correctly. This can create a problem for you with your tax. Your employer should deduct tax from your pay using a PAYE (“Pay As You Earn”) tax code. The PAYE tax code is issued by HM Revenue & Customs to the employer. A copy is also sent to you. There is more information about this on the HM Revenue and Customs website: http://www.hmrc.gov.uk/incometax/understand-p2.htm - understanding your P2 notice of coding If the information on the PAYE code is not correct, it is your responsibility (not your employer‟s) to let HMRC know. Normal tax codes Generally, if you just have the one job, your tax code in 2008/09 should be 543L, until September 2008 when it should increase to 603L – the result of special changes this year to compensate for the loss of the 10% tax band. This represents your personal allowance of £5,435 for 2008/09 (£6,035 from September) – the amount you are allowed to receive tax free before you have to start paying income tax. (You can check the latest income tax allowances here http://www.hmrc.gov.uk/rates/it.htm ) If PAYE operates correctly, the right amount of tax should be collected over the tax year. You may be able get a tax refund if: You leave your job and do not take taxable benefits/start work again in the tax year You are an employee and want to claim tax relief for expenses You leave the UK part way through the tax year
If your tax code is wrong, you may be due a refund or have additional tax to pay: it depends on your particular circumstances and the nature of the error. You can check if the current deductions from your pay are roughly right by using the calculator here http://www.worksmart.org.uk/money/income_tax Top
b) How to check your tax
You can check if you paid the right tax for earlier tax years here http://stccalculator.hmrc.gov.uk/UserDetails.aspx – it says „students‟, but works for most people under the age of 65 with simple tax affairs. If the overpayment of tax happened a long time ago – you may still be able to get a tax refund – see “How far can I go back in claiming tax refunds?” Top
c) Is my tax code wrong? How do I get a tax refund? You may be paying too much tax if your tax code is an „emergency tax code‟ which is often BR (which stands for “Basic Rate”). BR tax code means that basic rate income tax is deducted from your salary and you are not being given the benefit of your personal allowance. The basic rate of tax is 22% for 2007/08 and 20% for 2008/09. The BR tax code may be correct if you have more than one job, or both employment and pension income. In these cases your main job should have the 543L tax code in 2008/09 (603L from September 08 onwards) and your other employments should usually be “BR”. The idea is that you receive your tax free allowance via your main job, and because that salary has „used up‟ the allowance the rest of your earnings from other jobs should be taxed at 20%. The position is a little more complex if you are a pensioner. If you are receiving a pension and are under 65 you need to remember that the state pension is taxable, but is not taxed at source. This means that the tax due on the state pension is usually collected by reducing the tax free pay available for other income taxable under PAYE such as a private pension, an occupational pension or employment income. The result is that the tax code on the main source of income is less than 543L (603L from September 2008) and other sources of income are taxed at basic rate. Women aged 60 to 65 can be in this situation. For those over 65, the position is similar, but people over 65 are entitled to a much higher tax free personal allowance. Use the calculators above to check if your tax is right. If you have several small jobs or pensions, you could pay too much tax with BR codes. Equally, if you have several jobs with substantial pay, you could pay too little tax – and get a large unexpected tax bill in the future. Top d) Starting a new job – getting your code correct If you have started a new job, did you provide your new employer with a Form P45 from your previous employer? If not, and you did receive a P45 from your former employer, then it needs to be given over immediately. If it was a new job, and you do not have a P45, did you complete a Form P46? If not, you can ask for a copy of this from your employer, your local tax office or you can download it here: http://www.hmrc.gov.uk/forms/p46.pdf When your new employer sends in the form P45 or P46, HM Revenue & Customs can correct your PAYE tax code. If your P45 or P46 does not get processed quickly enough, you can contact the tax office which deals with your employer‟s PAYE scheme. You will need the PAYE tax reference which should be
shown on your payslip, P60 or Tax Coding notice; if you cannot find it then ask your employer/payroll department for it. The PAYE tax reference is usually a three digit number followed by a sequence of letters/numbers e.g. 120/MN89104. The first three digits can help you identify the tax office which deals with the PAYE scheme. Go to http://search2.hmrc.gov.uk/kbroker/hmrc/locator/locator.jsp?type=1 and enter the three digit numeral to find the tax office. In the case above “120” relates to the North East Metropolitan Area tax office. Clicking on the appropriate office takes you to their telephone number and postal address. When you contact the Revenue please ensure you have your national insurance number. You can then provide the Revenue with information about your new employer and your job. The correct PAYE tax code should be issued within a week or so - make sure you check your copy when you get it, and check your next payslip to see your employer is using the new code. If you have overpaid tax, for example because you were incorrectly on a BR code, the good news is that if you are issued with the correct tax code you should get a refund of tax in your next month‟s pay. Top
e) What happens if I have underpaid tax by mistake? Occasionally errors with a tax code can mean that you will accidentally underpay tax. In this case your tax deductions may increase when your code is revised. If the adjustment is large, but u nder £2,000, it should be recovered by changing your tax code for following year, though you may ask for recovery over two years. HMRC will often reduce the impact of large changes in the current year by using a Month 1 (M1) or Week 1 (Wk1) code. If there is a large underpayment, you may be sent self-assessment tax returns to complete and any tax due will be by a direct bill. You may negotiate time to pay, but interest will be charged on tax paid late. Once the tax is paid, you may ask HMRC to consider waiving the interest as a concession. This may be done on the basis that there have been delays by HMRC and that you were not aware that there was tax to pay. It may also be worth mentioning that if it had been possible to collect the underpayment through a change to your tax code then interest would not have been applied. If the underpayment was the result of an HMRC error and there has been a long delay (in practice this usually means about 2 years) then it is possible to ask HMRC to consider writing off the debt if you could reasonably have thought your tax affairs were in order (in accordance with Extra Statutory Concession A19). This is not a straightforward concession to obtain and you may need to take advice first. Top f) I left my job and have not been receiving taxable state benefits – can I get a tax refund?
If you have left your job part way through the tax year you may not have received all of your personal tax free allowance. Generally speaking you receive 1/12 of your personal allowance each month. For instance, if you leave a job six months into the tax year, you will have only received 6/12 or half of your personal allowance. If you are Not going to a new job in the next four weeks and Not claiming taxable state benefits such as Job Seekers‟ allowance
You may consider making a claim for the rest of your personal allowance by completing Form P50. http://www.hmrc.gov.uk/pdfs/p50.pdf HMRC will usually make refunds in „stages‟ by giving you your unused allowance up to the date of your claim. They will send you a new P45 so that you can make another claim. This avoids an „over repayment‟ later in the tax year. Otherwise, if all your allowance for the year is given before the year end, and you start work again before the 5 th April, you will not have any personal allowance to use against your salary. You would then find that you are paying more of your wages as tax than you have done in the past. Top
g) I want to make a claim for expenses It is very difficult for employees to claim a deduction for their expenses. The general rule is that you can make a claim if the expense is wholly, exclusively and necessarily incurred in the performance of your duties of employment. The necessary clause has sometimes been interpreted quite stringently – as an objective test. If you did not incur the expenditure, could you still do your job? In addition, if your employer did not reimburse you or pay the expense on your behalf the Revenue may question if the expense really is necessarily incurred for your job. The cost of commuting from your home to your place of work is, in almost all cases, not allowable for tax purposes. The costs of private medical insurance or other „dual benefit‟ expenditure is similarly not allowable. However, for business mileage incurred in seeing clients, there is an authorised mileage allowance payment scheme which allows you to claim 40p per business mile for the first 10,000 miles and 25p per mile thereafter. You need to keep a log of mileage for your business trips (eg date, milometer reading at beginning/end of trip, where to, reason – eg to visit supplier) In order to make a claim you will need to complete a Form P87: http://www.hmrc.gov.uk/forms/p87.pdf Top
h) How far can I go back in claiming tax refunds?
If you have not followed these steps in the past and you feel you have overpaid tax, do not panic. You can usually submit a claim for a tax refund for up to the last six tax years. The general rule is that you can make a claim up to the fifth anniversary of the 31 st January following the tax year in question. This means you can, for example, obtain a tax refund for 2002/03 at any time up to 31 January 2009 (31 January 2004 plus five years). In order to see if you are due a refund of tax you need to collect together your P60s/P45 (which should show the total salary received and tax deducted). If you have had any periods on Job Seeker‟s Allowance or Long term Incapacity Benefit you will also need to find out the amounts you received for each tax year you wish to make the claim for. To do a rough check on your tax, see: How to check your tax above. If you think you are due a refund, send all this information together to your PAYE tax office (see above) and ask them to check and process any refund due to you. There is no special form to do this – a short letter (include your NI number) is sufficient. If you are unable to locate your old P45s/P60s you can call your local tax office, and ask for “pay and tax details” for the relevant tax years. Once you have their letter you can then send it back with a cover note asking them to see if you are due a refund of tax. When sending any documentation or letters to HM Revenue & Customs do not forget to take a copy. The P60 and P45 forms are vital documents. Please be aware that it may take time to get your tax refund. Tax offices sometimes have delays in dealing with post which can be anything from a couple of weeks up to three months - or even longer. You can always check the progress of your claim by telephoning the tax office and finding out when your letter is likely to be dealt with. Top
i) I am leaving the UK; can I get a tax refund? To find out more about this, you need to look at a different FAQ: Q3: I am leaving/have left the UK – what do I do about my tax? Can I get a tax refund? Accessible on this link http://www.taxaid.org.uk/faqs.cfm?articleid=93.
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j) Further advice if your query not covered by this section If your query relates to your tax code, or your employer operating PAYE, you may want to check first with your employer or your employer‟s tax office. If your problem is about your rights and employment law, see http://www.tuc.org.uk/tuc/rights_main.cfm or http://www.acas.org.uk/
You can use our website contact form, or you like to contact TaxAid on our helpline 0845 120 3779 (Mon-Thurs 10am-12pm). If you are using either the website or the helpline you should have the following: Your latest payslip/last P60/P45 Details of any taxable Job Seekers‟ Allowance/Long term Incapacity Benefit received You will need to give us the information off the payslip/P60/P45 including the gross pay received to date and tax deducted to date as well as your tax code. Where possible you will also need to let us know the PAYE reference.
The more information we have on the above the better as it helps us to help you. Top