In a revelation that may affect millions across the United Kingdom, a substantial sum of money—potentially reaching up to £689 per individual—is being unnecessarily paid out to HM Revenue & Customs (HMRC) due to incorrect tax codes. This oversight has resulted in a collective overpayment of £5.8 billion, a situation brought to light by a recent study from Canada Life.
A staggering 31% of adults have found themselves assigned the wrong tax code on their payslip at some point, leading to an average overpayment of £689. This issue is compounded by the fact that one in six working adults in the UK are unsure whether their tax code is correct, and a concerning 39% do not understand the meaning of the letters and numbers constituting their tax code.
Moreover, the survey by Canada Life uncovered that over two-thirds of participants were unaware of how to reclaim overpaid tax. Given the significant impact of tax codes on the amount of income tax paid, it’s crucial for employees and individuals receiving private pensions to verify their tax codes’ accuracy.
John Chew, a tax and estate planning specialist at Canada Life, emphasized the importance of understanding one’s tax code. Mistakes can lead to individuals either overpaying or underpaying tax, which could result in unexpected financial strain or obligations.
Tax codes are determined by information provided by employers or pension providers, and inaccuracies may arise for various reasons, such as changes in employment or having multiple jobs. While HMRC disputes the figures suggested by Canada Life, they encourage individuals to check and update their tax codes online to ensure accuracy.
For those looking to verify their tax code, several methods are available, including online personal tax accounts, payslips, the HMRC app, or Tax Code Notice letters from HMRC. It’s also possible to report discrepancies to HMRC directly via phone or letter to correct one’s tax code and ensure the proper amount is being paid moving forward.
This situation highlights a critical need for awareness and vigilance regarding tax codes among UK workers. Ensuring accuracy can prevent unnecessary overpayments and secure one’s financial wellbeing. Martin Lewis from MoneySavingExpert offers a family tax code check tool .
The Workers Union Says…
“Understanding and verifying your tax code is a crucial aspect of financial health for workers across the UK. With millions potentially overpaying on their taxes due to incorrect codes, it’s imperative to take proactive steps to check and rectify any discrepancies. By doing so, you not only safeguard your earnings but also contribute to a more transparent and fair tax system.”
