Refunds for employees
Tax Guide for Employees guide
If you stop work part way through the tax year, you may be due a refund of PAYE. This can also apply if you have been on a temporary or ‘emergency’ tax code – such a BR or week one / month one. Other incorrect tax codes may result in tax refunds. For example, this can happen where workers have multiple part-time jobs.
If you leave the UK during the tax year you may also be due a refund.
What you need to know
Where an individual leaves work part way through the year, and is then on out-of-work benefits, or not working and not claiming benefits, it is likely that they will have overpaid tax. This may also happen where someone stops working and leaves the UK.
A refund may be due because the PAYE system will usually spread an individual’s personal allowance, (the amount of tax-free pay they are due) over the full 12 months of the tax year (from 6 April one year to 5 April the next year). If you stop working before the end of the tax year, you may have some unused personal allowance.
Some people may have paid too much tax because their income has not been taxed on the correct PAYE tax code. This is particularly likely for people with multiple part-time jobs.
What might go wrong?
Multiple part-time jobs
People who have multiple part-time jobs may overpay tax. This was discussed in the section ‘Understanding your tax code’.
For example, someone with three part-time jobs and earning £4,000 a year in each of them, might be taxed by the first employer using a 1150L tax code; while the second and third employers use a BR code (20% deduction). This arrangement would mean that they had not obtained the benefit of all their personal allowance.
Temporary tax codes
Refunds may also be due when individuals are paying tax on a Month 1 or Week 1 basis. These are emergency codes and should only be in place as a temporary measure until HMRC has the necessary information to issue a permanent code.
Stopping work before the end of the tax year
If someone stops working (or leaves the UK) before the end of the tax year, then, under the normal PAYE rules, they will have received only part of their tax-free pay against their income.
Even if they then claim out of work benefits, the amount of taxable benefit received each month will be less than the tax-free income to which they are entitled. This will leave unused tax-free income available to use against their earlier income from employment.
What action should I take?
Some refunds will be given via the payroll, once HMRC has the necessary information. Other refunds need to be claimed. In other cases, claiming a refund will simply speed up the process meaning that the individual gets their refund sooner.
Stopping work and claiming benefits
Anyone who claims benefits after stopping work should give the P45 from their former employer to the Jobcentre plus. Jobcentre plus will then issue any refund due at the end of the tax year, or at the end of the claim, if sooner.
Stopping work and not claiming benefits
Someone who stop work and does not claim benefits, can claim an in-year refund after 4 weeks from HMRC on form P50 – see Form P50 download page on the HMRC website.
HMRC’s year end PAYE reconciliation (P800 calculations), may catch up with many of these cases, but any refund would be issued some time after the end of the tax year, once all the PAYE returns have been processed.
Stopping work and moving abroad
If you stop working in the UK part-way through the tax year in order to live or work abroad, you may be due a refund. To claim your refund you will normally need to complete form P85 (P85 download page ) and send this to HMRC along with your P45.
If your situation is complex, you should take advice as tax and residence is a tricky issue. Complex situations include those where you move abroad but retain a home in the UK, or make frequent visits to the UK.
Continuing to work but on an incorrect tax code
If you think your tax code is incorrect, you should contact HMRC during the tax year. HMRC may then be able to issue a revised tax code to your employer. Once the revised code is received, your employer can then refund to you any tax overpaid.
If you need a refund for the immediately previous tax year, you may need to contact HMRC to request a refund. In many cases HMRC will automatically process the refund for you as part of the annual, tax year-end reconciliation process. HMRC will issue a PAYE tax calculation form P800 and send you a refund – without the need for you to intervene.
If you think you are due a refund for any of the last four tax years and have not received it, you should contact HMRC.
After four years from the end of the tax year, your claim for a refund becomes out of time and HMRC will not process it. Exceptionally, if the error is not disputed and was made by HMRC, you may ask for this time-limit to be disregarded under Extra Statutory Concession B41.
Income tax when leaving the UK https://www.gov.uk/tax-right-retire-abroad-return-to-uk
Claiming a refund when you stop work’ https://www.gov.uk/claim-tax-refund/youve-stopped-work
If you want to know if you are due a refund, and your circumstances are reasonably simple, then you can use the HMRC tax checker at http://www.hmrc.gov.uk/calcs/stc.htm.