Date posted: 18th Sep 2024
If it works correctly, the tax that is collected under PAYE will exactly match the tax that is due for the year.
However, in practice, this balance may be disturbed, for example, because benefits included in a tax code change or a wrong tax code is used, and an employed taxpayer may pay too much or too little tax as a result.
Where this is the case, HMRC will send out a letter. This may be a tax calculation letter (P800) or a Simple Assessment letter. The letter will explain how to pay any taxed that is owed or, where the taxpayer has overpaid tax, how to claim a refund. A letter will only be sent out where the taxpayer is employed or in receipt of a pension. Where the taxpayer is within Self Assessment, over and underpayments are dealt with through the Self Assessment system.
The letters are normally sent out between June and the end of November each year. A person may receive a tax calculation letter if the wrong tax code has been used, if they finished one job and started another in the same month and were paid for both jobs in that month, they started receiving a pension or received Employment and Support Allowance or Jobseeker’s Allowance.
A Simple Assessment letter will be sent where a person owes tax that cannot be collected via an adjustment to their tax code, they owe tax of more than £3,000 or have tax to pay on their state pension.
If there is an underpayment of tax, that is unexpected, it may be worthwhile considering whether there has been an error by either HMRC or your employer/pension company. If there has, then the tax underpayment may not be able to be collected by HMRC from you.
Claiming a refund
HMRC have changed the way in which they deal with refunds where tax has been overpaid under PAYE. Previously, where a refund had not been claimed, HMRC would send a cheque out automatically 21 days after the issue of the tax calculation letter. They no longer do this and, where tax has been overpaid under PAYE, the taxpayer will only receive a refund if they actually claim it. The tax calculation letter will explain how to do this.
Where the letter states that the refund can be claimed online, this can be done by visiting the Gov.uk website at www.gov.uk/tax-overpayments-and-underpayments/if-youre-due-a-refund. The refund can be made via bank transfer. Alternatively, a cheque can be requested.
Refunds can also be claimed through the taxpayer’s personal tax account or the HMRC app. A taxpayer can also contact HMRC on 0300 200 3300 and request a cheque.
Don’t forget that HMRC may not be aware of any higher rate tax relief for contributions made to pensions or gift aid donations, so even the refund calculation may be incorrect.
As ever, if you need advice, please call us.
