9 Reasons You Might Be Due A Tax Refund​

Paying the tax you owe is supposed to be simple—and for many people, it is. If you’re working ‘on the books’ for an employer, it’s all handled automatically through the Pay As You Earn (PAYE) scheme. If you’re self-employed or have other untaxed income, though, you’ll use the Self Assessment tax return system to report your earnings and expenses to the taxman. Either way, HMRC crunches the numbers and works out how much tax you owe. After that, the money’s either taken from your pay before you get it or you settle up yourself.

Here’s where the problems start. HMRC’s calculations are only as reliable as the information it’s working with. The taxman won’t always have a complete and accurate picture of your work and finances. When that happens, it’s easy to end up paying the wrong amount of tax without realising it – often for years at a time! There are millions of pounds in overpaid tax going unclaimed every year, and you may need to apply for a tax overpayment refund to get it back.

For example, you might be owed a tax overpayment refund if:

You’re on the wrong tax code

Tax codes can be tricky. When the system’s working well, your code lets HMRC know of any circumstances affecting the tax you owe, along with how much you can earn tax-free. However, tax codes can change over time, and they might not always keep pace with your situation.

If your tax code changes unexpectedly, you can either kick up a fuss with the taxman to find out why or have an expert look into it for you. What you really can’t afford to do is ignore it and assume it’s someone else’s problem to fix. It’s your responsibility to get your tax code corrected if it’s wrong, even if it wasn’t your mistake that caused the problem. If HMRC agrees that your code for the current tax year isn’t right, you might get a tax overpayment refund through the PAYE system.

If HMRC notices that you’ve paid too much or too little tax, you’ll get a P800 letter for the previous tax year. This will explain how to get any refund you’re owed. If you think you should have been sent a P800 but don’t have one, contact the taxman and sort it out.

Even if your tax problems go back further than that, you might still be able to get your tax overpayment refund. You can actually claim tax refunds for as long as 4 tax years back. You’ll need to be pretty sure of your footing, though, so talking to a professional might be a smart move.

Check your tax code

You’ve changed from your previous job

You’re not limited to claiming back your overpaid tax from your current job, either. If you’ve already had your final pay-out from your last employer and you’re now working somewhere else, you’ll probably get your tax overpayment refund through your normal pay. If you already had your new job before you left your old one, HMRC will settle up when they next check your tax code. Again, though, it all depends on HMRC having complete and accurate information about your job and income. If the taxman doesn’t have the full picture, you’ll need to fill in the blanks for him.

If you find yourself on benefits like Jobseeker’s allowance or Employment and Support Allowance, you won’t be able to claim back any refund you’re owed straight away. If HMRC decides you’re owed anything back, you’ll get it either at the end of the tax year or when you start a new job.

If you’re not getting benefits, and you’ll be getting a workplace pension before the end of the tax year, you’ll get back anything you’re owed the next time your tax code is checked. Otherwise, you’ll have to make your refund application yourself – either directly or through the Self Assessment system, depending on your situation. If you don’t fancy hashing this all out with HMRC on your own, RIFT can do it for you. We've been claiming back overpaid tax for people like you since 1999, and an average 4-year tax overpayment rebate with us is worth around £3,000.

If you’ve left one PAYE job and you’re looking to start another one within 4 weeks, tax wrinkles can often be smoothed out by making sure your new employer has parts 2 and 3 of your P45 form. If you’re owed tax back from previous tax years, you’ll either get a P800 from HMRC or you can ask RIFT to deal with it for you. All you’ll have to do is decide how you'll spend your refund.

Read our guide: P45s

You’re owed a pension tax refund

It’s possible to end up paying too much tax on your private pension, but you can still get back what you’re owed. If you overpay tax on the actual income from your pension, your provider may simply pay you back. Otherwise, you may get a P800 from HMRC to settle the books. If neither of those things happens, though, it’s time to call HMRC.

For lump sums, it all depends on whether we’re talking about a ‘defined benefit’ or ‘defined contribution’ scheme. For defined benefit lump sums, you should get an automatic repayment if you’re on Self Assessment. If you’re not, you’ll need to send a P53 form to the taxman to square it all up.

For defined contribution schemes where you’ve used up your entire pension pot, you’ll find yourself using form P53Z or P50Z. The form you need depends on whether or not you’ve got any other taxable income. If there’s anything left in your pot, you’ll use form P50 to get your refund, as long as you’re not taking regular payments from your pension. If you are, we’re back to waiting for a P800 calculation from HMRC if your provider doesn’t refund you automatically.

For pensions you’ve inherited, believe it or not, the rules get even trickier. It might be worth talking to a tax expert if you don’t know where you stand.

How much should you have in your pension pot?

You’ve got annuities

If you’ve got a purchased life annuity, you’ll usually be taxed on it at your normal rate. However, if your income is under your tax-free Personal Allowance, you’ll be able to claim that tax back. Alternatively, you could ask for your annuity to be paid out without tax taken off.

To get any tax overpayment refund you’re owed, you’ll need a form R40 for every year you’ve overpaid. As always, there’s a hard limit of 4 years to get back what you’re due.

If you want your annuity paid tax-free instead, you’ll send form R89 to your provider. People with joint annuities use form R86 instead. Either way, you’ll have to alert the provider if your income ever goes up. If you start bringing in more than your Personal Allowance, you’ll owe some tax on it.

For pension annuities, you should get a P800 letter from HMRC if you’re owed a tax overpayment refund. If you don’t get one and think you’re owed money, talk to HMRC.

You’re owed a redundancy payment tax refund

Thankfully, not every tax overpayment refund is complicated to get. If you’ve paid too much tax because of a redundancy payment, you can just call HMRC to arrange your refund. If you’re lucky, you might even be able to get your money before the end of the tax year!

Read our guide: Tax refunds & redundancy

You’re on Self Assessment

Self Assessment tax returns are designed to be as simple as possible to use. Even so, if you don’t have a strong understanding of the tax rules you can end up overpaying. Even worse, you could find yourself storing up serious trouble by not paying enough. If you file your tax returns online, you can log into your Self Assessment account to check your calculation and request any repayment you’re owed. You can do the same thing through your Personal Tax Account or Business Tax Account if you have one.

If you still file your tax returns on paper, HMRC might refund you automatically. That’s assuming they realise there’s a problem, of course. If not, you can write to them directly. It’ll probably take a couple of weeks to get your money refunded, either by cheque or to the card you paid with.

You’ve received savings or PPI interest

If you’re not registered for the Self Assessment system and you need to claim back some tax on your savings or PPI interest, you might be able to use HMRC’s R40 form to get your tax overpayment refund. The process will probably take around 6 weeks.

Here’s how it works. If you’re a basic rate taxpayer, you get a Personal Savings Allowance (PSA) that lets you earn up to £1,000 in interest without paying tax on it. For higher-rate taxpayers, the limit is £500. If you’ve had tax taken from your interest without using up your PSA, you can use form R40 to claim it back.

It’s also worth knowing that people with work or pension income of up to the Personal Allowance threshold (the amount of money you can earn before you start to pay Income Tax) qualify for a ‘starting rate for savings’ of £5,000. This means that the first £5,000 of interest they get is taxed at 0%. Anything you earn over your Personal Allowance brings down the amount of interest that qualifies for the 0% tax rate by the same amount.

Income from abroad and earning while overseas

Having money coming in from overseas can complicate things when you’re paying your tax. This is a huge topic to cover, but a lot of it revolves around whether or not you’re a ‘UK resident’ for tax purposes. There’s a series of tests to work this out, and it’s important to make sure that HMRC has all the details right. It’s possible, for example, to be a ‘non-domiciled resident’, meaning you’re a UK resident but your permanent home is overseas.

In fact, you can still find yourself paying UK tax on your UK income if you actually live abroad. This can include anything from wages and savings interest to rent and pensions (usually not your State Pension, though). If you qualify for a Personal Allowance, of course, you’ll still get the benefit of that. If not, you’ll be paying tax from the very first penny you earn.

If HMRC doesn’t have a full understanding of your situation, you could even find yourself being taxed in more than one country on the same income. The UK does have ‘double-taxation’ agreements in place in various places around the world to solve this, but they’re not universal. When in doubt, talking to a tax professional can save you a lot of hassle when you’re dealing with overseas income.

Use form R43 or the Self Assessment system to apply for any tax overpayment refund you’re owed, depending on your situation.

Paying tax while working overseas

Refunds for work expenses

When you’re paid by an employer through PAYE, there are many essential, day-to-day expenses that can earn you a tax rebate each year. Keeping good records of your mileage and travel costs to temporary workplaces could see you getting thousands back from HMRC. Upkeep of tools, equipment or uniforms – and even your daily cuppa at the work canteen could all count toward the tax refund you’re owed.

You can apply for your refunds online or on paper, but the taxman will expect you to back up everything you’re asking for with solid evidence. Talking to a tax professional like RIFT can be a lot easier, safer and more effective than going it alone.

That’s about it for our quick wrap-up of HMRC’s various refund systems. The key thing to remember is that HMRC really isn’t out to get you. All the taxman actually wants is the tax he’s owed and not one penny more. He’ll never try to cheat you, but he expects the same respect from you in return.

As long as your claim is solid and well-supported, you’ll get back what you’re owed. There really is no reason to leave your refund cash in the taxman’s pocket, so get organised, keep good records and don’t be afraid to call in professional help from RIFT.

Find out if you're owed a tax overpayment refund