More than two fifths (43%) of UK adults that have checked their tax code, have found they are on the wrong one, new research1 from Canada Life today reveals.
While a fifth (20%) of those who were on the wrong tax code were underpaying as a result, almost three quarters (71%) were overpaying. Those who paid too much gave the tax man £694 more than they were supposed to on average, with one in seven (13%) overpaying more than £1,000 – this totals £8.2bn 2 in overpayments because of wrong tax codes. With only a third (36%) of UK adults comfortable with how to claim back overpaid tax, this leaves around 34 million individuals who are unsure about the process, many of which could currently be owed an unclaimed tax rebate.
Conversely, two thirds of UK adults (67%) believe they are on the right tax code, but just 38% know this for certain and taxpayers who have checked their code have not checked their code for two years on average. However, nearly two in five (38%) say they have noticed a change in the amount they pay in income tax in the past three months.
Andrew Tully, technical director at Canada Life commented: “Understanding your tax code is vital to ensure you’re paying the right amount of income tax. Those who are not on the right code may find themselves out of pocket. If it’s wrong, you may end up contributing more or less than you’re supposed to. And although overpaying means you should get a rebate – if and when it’s spotted – underpaying means you may have to pay HMRC a lump sum to make up the short-fall. If you are in doubt about your tax code, there are a variety of online resources to help you check, including salary and pension withdrawal calculators.
“If you think you are on the wrong tax code you can call HMRC directly. It’s worth keeping in mind 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. There are very limited exceptions to this, for example if HMRC has made an official error, so if you are in any doubt, the earlier you contact HMRC, the better.”
Reasons for not checking tax codes
The findings reveal that 16% have never checked they are on the right tax code. Of those who have not checked their code for five years, nearly one in five (18%) have not felt the need and one in six (15%) never think about it. Whereas a tenth (10%) trust HMRC to be taxing them the right amount, and 8% don’t know how to check their code.
Reasons for checking tax codes
For the 48% of UK adults who have checked their tax code, the most common reason was out of habit (20%). The cost of living was the second most motivating factor (14%). One in ten (10%) check it every pay day, while 9% did so having been on the wrong tax code before. the same amount did so because they always check it before completing a self-assessment, or because they had changed jobs (both 9%).
