Ways you might have paid too much tax
Updated: Mar 18
Overpaying tax happens more than you might think. Here are some of the ways it might have happened to you.
Leaving a job part way through the tax year
If you have left your employer and either didn't start a new job in the same tax year, or there was a gap in your employment, you might not have used all of your personal tax free allowance for that year (£12,570 from 6th April 2021). You may be due a refund of tax paid via PAYE. Also beware of other changes during the tax year like redundancy, maternity or changes in your salary or benefits.
Multiple jobs / multiple sources of income
This can go both ways. Every organisation paying you will be ignorant of how much tax you are paying through the others, so it's easy to have the wrong amounts of tax applied. It's up to you to make sure this is corrected by HMRC.
If one partner doesn't use all of their personal allowance, up to £1,260 can be transferred to a spouse or civil partner (£1,250 in 20/21 - subject to earnings limits. This could be worth up to £252 in refunded tax for 21/22 AND you can backdate claims by up to four years meaning a potential refund of up to £1,188! The transfer of marriage allowance doesn't happen automatically, it has to be applied for - so it's worth checking if you're eligible.
Professional fees and subscriptions
You can claim tax relief on fees or subscriptions you pay to approved professional organisations. This only applies if you have to be a member of an organisation to do your job and you haven't been reimbursed by your employer. Approved professional organisations include the Royal College of Nursing (RCN), the Institution of Engineering & Technology (IET), the British Medical Association (BMA), the Chartered Institute of Personnel & Development (CIPD) and over 16,000 more! Definitely worth checking if yours is on the list.
Working from home
If you are required to work from home all or some of the time by your employer (and the lock-down measures do count) you can either arrange with your employer for them to pay you up to £6 per week tax & national insurance free towards your homeworking costs (gas, light, heat, water etc). Or, you can claim the same direct via HMRC. At up to this amount you don't need to keep any records to support your claim. The flat rate is a bit different for the self -employed. Self-employed business owners can claim £10 if they work more than 25 hours per month from home (higher if the hours are over 50 per month). Alternatively, you can claim more if you can produce records and calculations to support it.
Tools and equipment
If you have to provide your own tools and equipment (e.g. hairdressers own scissors) you can claim the cost against your income to reduce your tax (as long as your employer hasn't reimbursed you).
If you have to travel for your work you can get tax relief on the cost of public transport, hotel accommodation, food and drink while away. congestion charges and tolls, parking fees and business phone calls and printing costs while away as well as business mileage. If you are self-employed make sure these costs are included on your self assessment tax return, if you are employed your employer should reimburse you, but if you do have eligible costs which were not reimbursed you can approach HMRC directly.
Uniforms and workwear
Cleaning, repairing and replacing specialist clothing (e.g. a uniform or safety boots) can be deducted from your income to reduce your tax. There are flat rate allowances available for some industries and occupations. (e.g. ambulance staff on active service £185). If your employer doesn't reimburse you for these costs you can claim with HMRC.
Benefits in kind
Employers often provide benefits to employees, e.g. a company car or private medical insurance. These are taxable and you should be provided with a P11d form at the end of each tax year to show you how much tax you have had deducted by your employer in relation to these benefits. However, check it carefully as mistakes can happen, particularly if your benefits have changed during the tax year. If a benefit was removed or reduced in value and it wasn't picked up through payroll then you may have paid too much tax.
Private pension contributions
If you pay into a private pension, your pension provider will normally claim tax relief for you and add the value to your pension pot ('relief at source'). But they will normally do this at the basic rate of 20%. But if you are a higher rate tax payer you will be entitled to additional tax relief on any income you have paid tax on at 40% (or 45% for higher rate tax payers) [the amounts differ for Scotland].
If you are a higher rate taxpayer, you can claim the difference between you marginal tax rate and the basic rate applied to your donation
Can happen. The payroll software used by employers is only as good as the information fed into it. It is up to you to spot any problems and get it corrected, so always check your payslips.
Like with employer error, you are in the end responsible for checking the income tax you pay.
There's no getting away from it, tax is complicated (too complicated!). In the end it remains your responsibility to ensure the tax you pay is correct so don't blindly rely on your employer / pension provider / HMRC to get it right - always check the documentation you receive from them. If you need help an annual review from an accountant or tax professional will quickly help you correct any mistakes.
The information contained within in this article is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice specific to your own circumstances from your own adviser.