You might be owed a tax rebate from HMRC if you have paid too much income tax during a tax year. In this guide, you’ll find out some of the most common reasons you may be owed a tax rebate and how HMRC processes a tax refund.
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
Am I Owed an HMRC Tax Refund?
You would be owed a tax refund if you paid too much income tax during one tax year**. You pay income tax on your taxable earnings such as gross pay from employment, business profits if you’re self employed or dividends. However, the amount you pay depends on how much you earn. The income tax rates for the 2022-23 tax year are:
- up to £12,570 0% (personal allowance)
- £12,571 to £50,270 20% (basic rate)
- £50,271 to £150,000 40% (higher rate + personal allowance restriction)
- Over £150,000 45% (additional rate)
Sometimes, people find themselves paying too much income tax. In these cases, HMRC may contact you to let you know that you have paid too much tax. For others, you may need to contact HMRC to let them know a mistake has been made. The most common reasons include being on the wrong tax code, starting/stopping a job part way through the tax year, paying for certain expenses as part of their job that isn’t reimbursed by their employer and those working under CIS.
** the tax year runs from 6 April to 5 April each year
Claiming a Tax Rebate for the Wrong Tax Code
A tax code is a numerical number, followed by a letter. HMRC issues your tax code to your employer so they know how much income tax to deduct from your salary. The most common tax code is 1257L for the tax year 2022-2023. It means that anyone on this code is given the full tax-free personal allowance of £12,570 through their payslip.
There are times when people find themselves the wrong tax code. This means they are not receiving the full personal allowance or even paying extra tax to HMRC. There are many reasons for this including:
- Starting a job and not providing a P45;
- Being on an emergency tax code;
- Ticking the wrong box on a starter checklist wrongly for a new job
- Not being employed for a full tax year;
- HMRC has made a mistake in sending your employer an incorrect P6 notification.
In some cases, HMRC may contact you to let you know you’ve paid too much tax with a P800 calculation and letter. In others instances, you may need to call HMRC to discuss your situation on 0300 200 3300. Alternatively, you can use their income tax service online by logging into (or setting up) your personal tax account with your user ID and password to notify them that you believe you are on the wrong tax code.
You’ll most likely receive a tax refund through your payslip. HMRC will send your employer a corrected tax code which they will use to give you a tax rebate.
Claiming a Tax Refund If You’ve Stopped Work
You might be able to claim a tax refund if you’ve stopped work or have been unemployed for more than 4 weeks but are searching for a job.
The PAYE system run by employers assumes that you are going to be in employment for the full tax year. That means you receive a portion of your personal allowance each time you get paid over 12 months. Your personal allowance is the amount you can earn tax-free during one complete tax year. However, if you work for less than 12 months, you’ll receive too little free pay. This can result in paying too much income tax.
You can claim a tax refund if you’ve stopped working by filling in the HMRC P50 Form. This can be completed online through your personal tax account, accessed once you have entered your user ID and password.
Claiming a Tax Rebate for Paying Work Expenses
If you have paid for expenses that your employer hasn’t reimbursed you for, then you may be able to claim a tax rebate. You can only claim a tax rebate on certain types of expenses including work uniform, safety clothing, work mileage and working from home.
Additionally, you can claim a tax rebate for paying for work expenses by either speaking to your employer or by filling in a P87 form. You can find out more about what expenses you can claim, including working from home. Find out how to claim them in this guide to claiming a tax rebate for paying for work expenses.
Claiming a Tax Refund for CIS
Construction workers are often affected by CIS tax. Those registered as CIS Subcontractors suffer a tax deduction, usually at 20%, every time they get paid from their income. This deduction is a payment towards their tax bill due by 31 January each year. CIS subcontractors need to fill in a self-assessment tax return and can claim allowable expenses on this return. That means many CIS subcontractors find that they are due a tax refund once they have claimed for their expenses.
Can You Claim a Tax Refund for Unused Personal Allowance?
You cannot claim a tax refund for any personal allowance you have not used by the end of the tax year. You cannot use the personal allowance or other tax allowances like the marriage allowance or trading income allowance to generate a tax refund.
Can I Get a Tax Refund if I’m Self-Employed?
You cannot get a tax refund if you’re registered as self-employed and your business makes a tax loss. Instead, you’ll be able to carry that loss forward to use against future profits, saving you tax at a later date. For that reason it is worth filling in a tax return and recording your business loss with HMRC.
If you’re are self-employed and seen a decrease in your taxable profits, then you may be due a tax refund if your payment on account was too high. As part of security checks, you may be asked to fill in an R38 form as part of claiming your tax rebate.