Over- or under-paying tax through PAYE.

If you’re an employee, tax is usually taken before your wages are paid. It’s easy to think that means everything is sorted. But sometimes PAYE doesn’t get it quite right.

You might get a refund because you’ve paid too much tax. Or you might get a bill because you haven’t paid enough. If this has happened to you, you’re not alone.

This page explains why it happens and what you can do next. Try not to panic – there are ways to put things right.

Why PAYE can go wrong.

Your employer sends details of your pay to HMRC, along with information from pension providers and the Department for Work and Pensions (DWP). HMRC uses this to work out how much tax you should pay.

After the end of each tax year (5 April), HMRC checks whether the right amount of tax was collected. This usually starts around July and can run through to December.

If there’s a difference:

• Refunds are usually issued first
• Tax bills tend to arrive later in the year

 

Problems often happen because PAYE relies on the right information being used at the right time.

Overpaying tax.

You might have paid too much tax if:

• You stopped working partway through the tax year
• You left the UK during the tax year
• You were put on an emergency tax code (such as BR, Week 1 or Month 1)
• Your tax code was wrong
• You had more than one job and paid too much tax overall

If your situation is fairly straightforward, you can use HMRC’s online tax checker to see if you might be due a refund.

How refunds work.

In many cases, you don’t need to do anything.

After the tax year ends, HMRC will usually work out that you’ve paid too much and contact you about a refund. This can take a few months.

If you think you’ve overpaid and haven’t heard from HMRC, you may need to contact them to claim the money back.

The government website has more information about claiming a refund on the tax you’ve paid.

If you’ve left the UK.

If you move abroad, you should tell HMRC. They’ll normally send you a tax calculation and issue any refund you’re owed. You can find out more about taxes and moving abroad on the government website.

Time limits.

You usually have four years from the end of the tax year to claim a refund. After that, HMRC won’t normally process the claim.

In rare cases where HMRC clearly made the mistake, it may be possible to ask them to look beyond this time limit under Extra Statutory Concession B41.

Underpaying tax.

Underpayments often happen because something wasn’t picked up during the year, such as:

• Having more than one job with the full tax-free allowance used more than once
• Tax codes that don’t include taxable benefits or other untaxed income
• Problems when changing jobs and P45 details not being processed correctly
• Multiple jobs that push your total income into a higher tax band, without enough tax taken from the second job

These errors can be caused by HMRC, an employer, a pension provider, or a mix of all three.

What happens if you’ve underpaid tax?

HMRC expects people to check their tax codes and query anything that doesn’t look right. Because of this, HMRC will usually try to collect any underpaid tax from you first.

That doesn’t mean you have no options.

Your options if you owe tax.

• HMRC made a mistake and told you late. If HMRC caused the error and didn’t tell you about it within the allowed time, they may agree to give up some or all of the tax owed under Extra Statutory Concession A19 (ESC A19). This usually depends on when HMRC had the information and how long they waited to act.
• Your employer or pension provider made a mistake. If the problem was caused by a clear, ongoing error by your employer or pension provider, HMRC may agree to collect the tax from them instead.
• Time to pay. If you do have to pay, HMRC will normally agree to a Time to Pay This usually gives you up to 12 months to pay the bill. Up to 36 months may be possible if paying sooner would cause hardship. These arrangements are usually interest-free.

In very exceptional circumstances, HMRC may pause recovery altogether.