Taxes are a staple in our lives, whether you are an employee or employer at a company or are self-employed and work alone. Whilst there are systems in place to make sure that everyone pays the correct amount of tax, there may be some cases where you pay tax and then realise that it was more than you owed.
We all have a tax liability based on how much taxable income we earn, which can change over time, so it's a good idea to keep an eye on the taxes you are paying throughout the financial year to see if the amount you pay corresponds with the tax you owe.
Income Tax is automatically deducted from employee pay by their employers through PAYE (Pay As You Earn), but self-employed individuals are required to complete a Self Assessment tax return, indicating how much profit they have made.
In this article, we'll look at how and when HMRC may issue you with a tax rebate and the procedures that are in place for individuals who have under or overpaid their tax in the financial year.
Some tax rebates are issued automatically, but it's a good idea to keep on top of your taxes because you may not be issued a refund of the correct amount. HMRC (Her Majesty's Revenue and Customs) may require you to fill out a rebate application form, which should state how much you think you are owed from which tax period.
You are unable to file a tax rebate claim for overpaid taxes from before April 2018. However, you are able to claim a rebate from April 2018 onwards, including the tax years between 2018 and 2022. Each tax year runs from 6 April to 5 April, so you will need to check which tax year you think you are owed a refund for.
Continue reading to find out more about the tax rebate process, including why you may be owed a rebate and how you can check to see if you have overpaid your tax and can claim a refund.
What is a tax rebate?
A tax rebate, sometimes known as a tax refund, is the amount that you are owed if you have paid too much tax. You may have overpaid your tax bill because the taxman has the wrong information about your earnings and has placed you on the wrong tax code. An employee who has moved jobs during the tax year may also be placed on an emergency tax code because their information may not have been passed onto HMRC in time.
HMRC may also place you on an emergency tax code if you begin working for a new employer after previously being self-employed. The emergency tax code will then stay in place until the financial year ends, after which a new tax code will be issued. In the meantime, you may find that you are overpaying tax for the rest of the year, which means that you will be due a rebate in the following tax year.
You may also be paying work expenses, such as travel costs, with your own money, which HMRC may give you tax relief on. This means that the tax you were due to pay will change because the work expenses will be excluded.
You may also be due a refund on additional expenses you paid for, such as your work uniform and tools. This includes any repairs or replacement costs, although it excludes the initial purchase of the clothing and tools. The items must be solely used for work and cannot be for personal use.
It's important to keep the receipts for work expenses so that you can give them to HMRC as evidence of your expenditure. This means that you can claim the exact amount that you paid. Alternatively, you could refer to the government's list of industries and occupations, which names the flat rate that you can claim for work tools and uniforms that you clean and maintain. These expenses are different if you are self-employed.
Who is eligible for a tax rebate?
You are eligible to claim tax relief if you have overpaid tax in the past four financial years. There may be various reasons that you think you are due a tax rebate. This could be because you feel that you have overpaid on one or more of the following areas:
- Travel expenses
- Work uniform maintenance or replacement
- Work tools
- Pension tax relief
- Working from home expenses (including gas and electric)
- Incorrect tax code
- Interest from savings
- UK income if you live abroad
- Redundancy pay
You should receive claimed expenses within three to four weeks, whilst automatic rebates will be paid at the end of the current financial year. One of the quickest ways to check if you are due a tax rebate for previous years is to log into your Personal Tax Account to check your current and previous tax code and how much tax you should have paid.
Your tax code may change due to changes in your life, which could change how much tax you are meant to pay. These changes could include starting a new job with a different salary, receiving taxable state benefits, claiming Marriage Allowance or claiming expenses that are eligible for tax relief.
Many people don't realise that they have overpaid tax because they haven't checked that they are on the correct tax code or know which expenses they can claim back. This means that they could miss out on reclaiming money that is rightfully theirs.
You can use our Income Tax calculator to see how much tax you should pay each month and over the course of the financial year. It's also a good idea to log in to your Government Gateway account, which will tell you how much tax you are expected to pay in the following tax year and to double-check that HMRC has given you the correct tax code.
How can I claim a tax rebate?
You can use the HMRC website to claim a tax refund if you think you have overpaid tax in the last four years. HMRC will require certain details before they can process your claim. You will need to state the area that you think you have paid too much tax on, such as your current job, pension or Self Assessment tax return.
The next question focuses on the year that you think you overpaid, bearing in mind the tax year runs from 6 April to 5 April each year and therefore isn't the same as the standard calendar year. If the year you provide for this question is the current financial year, HMRC should issue an automatic tax refund. However, you may need to check your tax code and inform HMRC if you think it is incorrect in their records.
HMRC will work out how much tax you have overpaid after the end of the financial year and send you a P800 form between June and October of the following financial year. You can contact HMRC if you think you have overpaid tax and have received a P800 between this period.
How will I be notified that I am eligible for a tax rebate?
HMRC should post a P800 form to you if they have noticed that you have paid too much tax in the financial year. The form will tell you how you can claim a refund, which may be online. In this instance, you can follow the steps on the HMRC website and you should be issued the full refund to your UK bank account within five working days. HMRC will automatically send you a cheque for your refund within 21 days if you do not complete the online application.
Your P800 may state that you will get your refund via a cheque, in which case you don't need to take any further steps. The cheque should arrive within 14 days of the date that the P800 was sent to you. You will only receive one cheque, even if you are due multiple refunds from various tax years. The cheque will be a combined total of however much you are owed.
Aside from telling you that you are owed tax, a P800 form could also inform you that you have underpaid tax and need to pay the remainder to HMRC. You will usually be required to make payments across multiple instalments throughout the next financial year until you have repaid everything that you owe. this will happen if you owe less than £3,000, pay income through your employer or pension provider, or earn enough over your Personal Allowance to cover the underpaid amount.
HMRC will let you know if you can make the repayments online. This may apply to you if the amount you owe comes from the tax years 2020/2021 and 2021/2022. If the amount you owe is before 6 April 2020, you will have to pay the amount via a cheque.
What does my tax code mean?
A tax code is used as a way of letting your employer or pension provider know how much tax you should be paying on your income. HMRC work out these codes based on your annual wages and distribute them to employers and pension schemes. You can find your current tax code on your payslip, as well as online via your Personal Tax Account on the HMRC website.
Your online account will also show your tax code from the previous tax year, as well as your expected tax code for the following year. You can also use it to see how much tax you are expected to pay, which is based on the tax code.
In some instances, you may have been issued with the wrong tax code. This usually occurs if HMRC hasn't been given the correct information about your current employment, or if you have changed jobs within the tax year and it is too late for HMRC to update your tax code.
Tax codes feature a letter and several numbers, which correspond to the allowances you are entitled to and how much Income Tax you should pay. The most common tax code for individuals who work in one job and pay into a pension scheme is 1257L. The numbers at the beginning of the code indicate how much tax-free income someone has, which in the given example means the Personal Allowance is £12,570. The L also means that the tax-payer is entitled to the standard Personal Allowance amount.
Any tax codes that end in W1 or M1 or X are emergency tax codes and are therefore temporary. Tax codes beginning with a K mean that the individual is not being taxed for their income in any other way as it's worth more than their tax-free allowance. This may occur if you are paying tax for a previous financial year through wages or your pension, or you have benefits that you are paying tax on. These benefits could be state or company.
HMRC will usually update your tax code as soon as they become aware of an income change. However, it's a good idea to check that they have given you the correct tax code, which can be done by contacting HMRC or updating your Personal Tax Account.
HMRC usually issues tax rebates automatically if they find that you have overpaid tax during the financial year. If this is the case, they will send you a P800 from June to October of the following year, which will give you the option to receive the refund through your UK bank account or via a cheque.
In some instances, you may need to notify HMRC that you have overpaid tax and are due for a rebate. You will need to supply HMRC with information about the overpayment, such as the tax that you think was affected and the financial year in which it occurred in. The tax rebate you are claiming has to be connected to a tax year that has occurred in the past four financial years.
There are a number of areas where you may have overpaid tax, such as work uniforms, pension contributions and Self Assessment. It's important that you regularly check the tax that you are paying because HMRC may have the wrong information and be over or underpaying you. In both instances, HMRC will usually send you a P800, but it's better to be prepared and have an idea of what tax you should be paying so that you can easily notice any discrepancies.