Britain’s salaried workforce is being urged to examine their payslips with fresh urgency after analysis revealed that more than five million people overpaid income tax in a single year due to incorrect tax codes. The scale of the error points to persistent vulnerabilities in the country’s automated Pay As You Earn system, which deducts tax before workers ever see their wages.
For many employees, the process is invisible, money leaves before it arrives, and the assumption is that the system gets it right. More often than not it does, but as recent figures make clear, a significant minority of workers are quietly losing hundreds of pounds a year without any indication that something has gone wrong.
The Scale of the Problem
According to analysis by accountancy group UHY Hacker Young, around 5.6 million UK taxpayers overpaid in the 2023–24 tax year as a direct result of incorrect tax codes issued through the PAYE system. The combined overpayment reached £3.5 billion, an average of £625 per affected person.
The PAYE system works by assigning each employee a tax code, which employers use to calculate the precise deduction from each paycheck. When those codes are wrong, the consequences compound quietly across every pay period. Errors are particularly common among workers who have recently changed jobs, received a promotion, taken on multiple income sources, or begun receiving workplace benefits such as private healthcare or a company car.
Lee Murphy, managing director of The Accountancy Partnership, said the problem tends to go unnoticed precisely because the deductions are automatic. “If you’ve changed jobs in the past year, or you have multiple sources of income, these are two reasons as to why your tax code may be wrong, and it’s worth calling HMRC to check in on this,” he said.
Importantly, the issue runs in both directions. Workers may also be unknowingly underpaying tax, a situation that can result in an unexpected bill from HMRC further down the line.
What You Can Do About It
Checking a tax code is straightforward. According to HMRC, workers can review their code through the HMRC app, their online personal tax account, or on any recent payslip. Those who have received a Tax Code Notice letter can also verify it there. Reporting an error is done by calling HMRC directly on 0300 200 3300 or writing to their PAYE and Self Assessment office.
Where overpayment is confirmed, HMRC will issue a refund, typically within five days of an online claim, and adjust the code going forward. Underpayments, provided they fall below £3,000 and the worker earns above the £12,570 personal allowance, are generally recovered gradually over 12 months.
Financial planner Alan Barral of Quilter Cheviot advises workers to resist the temptation to treat any refund as a windfall. Directing even a modest repayment into an emergency fund or a tax-free Cash ISA, he argues, offers considerably more long-term value than a one-time purchase. Experts broadly recommend maintaining three to six months of income in liquid savings as a buffer against financial shocks, and an unexpected tax refund presents a ready opportunity to start.
