A routine check of your payslip could uncover a significant rebate. Over £8 billion may have been overpaid in income tax by Britons due to incorrect tax codes. Millions of workers across the UK are being encouraged to examine their tax codes after research suggested a large number may have been paying too much tax.
A survey by Canada Life found that almost half of taxpayers who checked their codes discovered they were incorrect, potentially entitling them to a rebate averaging £694. With many unaware of how tax codes work, or how to correct them, experts are urging individuals to take action promptly.
The issue affects not only employees but also pensioners and others who receive income through PAYE (Pay As You Earn) systems.
Incorrect Tax Codes Linked to Widespread Overpayments
According to Canada Life, more than 40% of respondents who checked their tax code found it to be wrong, with a substantial 71% of those people overpaying income tax as a result. Among them, 13% had overpaid by more than £1,000. The financial impact is extensive: total overpayments are estimated at £8.2 billion.
Only 38% of people surveyed expressed confidence in the accuracy of their current tax code. Many had not reviewed their tax status in years—the average taxpayer last checked their code two years ago, according to the data. In practical terms, this means millions may be unaware they are entitled to a refund.
Tax codes are used by HMRC to determine how much income tax should be deducted from earnings. A code that fails to reflect a person’s current circumstances—such as changes in employment, multiple sources of income or adjustments in tax-free allowances—can lead to incorrect payments being made. In some cases, individuals are underpaying and could face a future tax bill.
Time-Limited Opportunity for Claims and Support Available
The process to reclaim overpaid income tax is time-sensitive. According to Canada Life, taxpayers have up to four years from the end of the tax year in which the overpayment occurred to file a claim. After this period, rebates may no longer be issued unless HMRC acknowledges an official error.
Andrew Tully, technical director at Canada Life, emphasised the need for public awareness: “Understanding your tax code is vital to ensure you’re paying the right amount of income tax,” he stated. He also pointed to the existence of online tools such as salary calculators and pension withdrawal guides that can help clarify one’s position.
HMRC can be contacted directly by individuals who suspect their tax code is incorrect. Given the potential sums involved, and the limited timeframe in which to act, financial experts advise regular monitoring of payslips and tax correspondence to avoid missing out on eligible rebates.
