Money saving expert says many paying too much tax
1 Jan 2019 | COMMENTS: 0 | Author: Ryan Smith | General
Depending solely on free tax advice online is not always the best idea – usually it is much better to get the inputs of a financial advisor. Even the best financial advice, however, means nothing if you don’t have money to invest.
The good news is that a windfall in the form of a tax refund might soon boost your investment funds.
According to Money Saving Expert Martin Lewis, the majority of people never check whether they have been assigned the right tax code, which could mean they have been paying too much tax.
The moneysavingexpert.com website claims that many individuals get the wrong tax code each year. The site has compiled a guide to help people check their tax code, and explains what they should do if they paid too much (or too little) taxes.
Its Tax Code Calculator has helped people to reclaim up to £10,600.
Have I paid too much tax?
Everyone who works full-time or part-time, as well as those receiving a private pension, should have a tax code. The unemployed or people who only receive a state pension won’t have one.
Your employer uses the code to calculate the tax deduction from your wages. The wrong code could, therefore, mean incorrect deductions.
The code should be on your P60 or P45 forms, your payslip and the coding notice you receive each March – or you can contact HMRC to get it. Typically, it’s a string of numbers and letters, e.g. K497.
Checking my tax code
To use the site’s tax code calculator, you first have to calculate your personal allowance – i.e. the amount you are allowed to earn before you have to pay tax. You also need to check if you have deductions, e.g. medical insurance.
Next, subtract the deductions from your personal allowance to get the amount of income you can earn before paying taxes. Remove a zero at the end of that number, and you have the initial part of your tax code. The next step is to put that into the tax calculator.
Why is my tax code wrong?
Your tax code could be wrong if you have started studying or gone part-time; you recently changed jobs; there was a change in your state benefits; you recently started working two jobs; or there was a change in your company benefits.
If you have paid too much, contact HMRC online or by phone. If they agree that you have overpaid, and it was in previous years, you will get a cheque. If it happened during the current year, your employer will fix the problem via reduced tax deductions.
Unfortunately, HMRC will only pay 0.5% interest on such overpayments.
People who paid too little could try challenging this with an A19 or Extra Statutory Concession. But chances are very good the application will fail, and they will have to pay the arrears taxes. If they are lucky HMRC will allow a payment plan.
Once you have the correct code, the immediate problem should be resolved. But the moment your circumstances change you might need a new code – e.g. if you switch employment or get a salary increase, it could be worthwhile to check the code again.
If the whole thing looks a bit too complicated, call in the services of a personal financial consultant.