Warning: self-assessment taxpayers overpaid £8.9bn in income tax last year

Self-assessment taxpayers overpaid an estimated £8.9bn last year*, research from national accountancy group UHY Hacker Young shows.

UHY Hacker Young says the ‘Payment on Account’ system used for self-assessment returns causes millions of people to overpay by requiring advance instalments based on their previous year’s tax bill. This means any dip in current earnings leads to a significant overpayment of tax, as this tax was based on last year’s earnings.

Data provided by HMRC to UHY Hacker Young found that around 2.6 million people are estimated to have overpaid income tax through the self-assessment system, with many unaware that they are owed money.

Overpayments made through self-assessment forms are not automatically corrected by HMRC. Taxpayers must identify the error themselves and formally request a refund.

Another reason for income tax overpayments can simply be mistakes made by people filling out the forms. Mistakes could be as simple as filling in the wrong salary or not claiming all valid business deductions (like travel or supplies) meaning you pay tax on profits that aren’t yours. 

UHY Hacker Young is urging people to ensure they take extra care when filling out self-assessment forms and seek professional advice if they unsure how to do it correctly.

UHY Hacker Young warns that HMRC backlogs mean reclaiming overpaid tax can be slow and frustrating. In some cases, taxpayers can wait as long as 18 to 24 months to receive their money. The firm urges anyone completing a self-assessment return to review income assumptions carefully and act quickly, where overpayments are identified.

Neela Chauhan, Partner at UHY Hacker Young, says: “Self-assessment is supposed to ensure people pay the right amount of tax, but for millions it means they are being overtaxed billions of pounds.”

“Self-assessment taxpayers must check whether they have paid the correct amount. Refunds are not automatic and HMRC will not proactively tell you that you’ve paid too much.”

“If you don’t check your return carefully and follow up, you may never see that money again. There are even cases where taxpayers have identified overpayments and HMRC are unnecessarily withholding money which is causing people a lot of undue stress. Any overpaid tax is essentially a low interest loan to HMRC so should be chased up as quickly as possible.”

*Data received from a Freedom of Information request from HMRC