Tax code errors costing billions – how to check you're on the right one - Which? News (2024)

UK workers overpaid an estimated total of £5.8bn to HMRC,simply because they were on the wrong tax code.

That's according to new research by financial services company Canada Life, which also found almost a third of UK adults discovered they were on the wrong tax code after checking. Three-quarters of those people paid an average of £689 more than they should.

So it's vital you check your payslip for any errors and, if you do find a mistake, ask HMRC to change the code and refund any money you've overpaid.

To help, Which? explains how to check your tax code, what to do if you're on the wrong one, and how to claim back any overpaid money.

Which tax code should you be on?

Your tax code, which is made up of numbers and letters, appears on your payslip, sitting somewhere near your National Insurance number.

You'll also find it on the coding notice you might receive from HMRC, the P60 you get after the end of the tax year, the P45 you receive if you change jobs and as part of your personal information if you have the HMRC app.

It's assigned to you by HMRC and tells your employer or pension provider how much tax needs to be taken out of your salary.

In 2024-25, the most common tax code is 1257L, but yours may differ depending on where you live, the level of personal allowance you are entitled to and the rate of tax you need to pay.

• Find out more:understand your tax code

How do you get put on the wrong tax code?

Sometimes, you may find your tax code changes, and you can end up paying more PAYE (pay as you earn) tax than you should if it's wrong.

There are a number of reasons why that might happen. For example, you may have started a new job, and your new employer wasn't given a P45, you may earn money from a second job, or there has been a change to any benefits you receive. Whatever the reason, if something looks wrong, you should get in touch with HMRC and query it.

Worryingly, however, Canada Life's survey of 2,000 adults revealed nearly one in five UK adults has never checked their tax code and almost four in 10 don’t even know what their tax code means. Those who have checked their tax code have only done so on average once every 16 months.

• Find out more:emergency tax codes explained

How to change your tax code

In many cases, HMRC picks up tax code issues without you doing anything. But don't wait for that to happen. Ultimately, the onus is on you to make sure your tax code is correct, so if you spot something amiss, report it to the tax office straight away.

You can tell HMRC either by using its 'Check your income tax' online service, where you can update your employment information and tell HMRC about a change in income that may have affected your tax code, or by contacting HMRC directly. If you think you're owed a refund, you can also request this via the HMRC app.

Once HMRC has enough information about your circ*mstances, the code will be adjusted for you. The tax office will then send you something called a 'coding notice' when it's been updated. Your employer or pension provider will also be given the new information.

Remember to check any payslips that you get after that time to make sure the new tax code is appearing.

How to claim a refund

If you think you've overpaid because of a tax code error, you might be eligible for a refund. Once you've told HMRC about the mistake, the tax office will inform you of a refund by post.

The money will then be paid back to you through your wages by adjusting the amount of tax you pay on your payslip. Refunds for tax from previous financial years will be sent by cheque.

Of course, there's also the chance that you've paid too little tax, in which case you'll have to pay it back. To do this, HMRC will either put you on an emergency tax code, or issue you with a tax bill.

There is, however, a limit on how far back you can claim for. The rules are that you must make a claim within four years. That means anyone who overpaid in 2020-21 only has until 5 April 2025 to make a claim to HMRC.

After the cut-off date, the overpaid tax becomes 'closed' to claims – the only exception where you might still be able to get a refund is when the overpayment is down to an error on the part of the tax authority.

• Find out more:how to claim a tax refund