You may be entitled to claim a tax refund if you’ve stopped work part-way through the tax year. Find out how tax refunds work when you’ve stopped working and how to claim it from HMRC using a P50 form.
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.
How to Claim a Tax Refund If You’ve Stopped Work
You may be entitled to a tax refund if you’ve stopped working for an employer, 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. As a result, you’ll pay too much income tax.
** the tax year runs from 6 April to 5 April each year
Example of How Tax Refunds Work if You’ve Stopped Work
It is the tax year 2022-23 and your monthly salary is £2,500. The personal allowance for the tax year 2022-23 is £12,570 and you have been been given the tax code 1257L, meaning you receive £1,047.50 (£12,570 ÷ 12) tax-free each month you get paid. On 30 September 2022, you unexpectedly lose your job and decide not to go back to work.
For the first 6 months of the tax year, your employer will give you free pay of £1,047.50 each time they pay you through your payslip and pay tax on the rest of your income. If you remained in employment you’ll continue to receive your personal allowance until it reaches £12,570 by the end of the tax year. But since you have lost your job you can claim a tax refund for stopping work. HMRC will recalculate how much income tax you should have paid after applying your full personal allowance of £12,570 instead of 6 months of work.
|Without Tax Refund||With Tax Refund||Tax Rebate|
|Tax @ Basic Rate Tax Band 20%||£1,743||£486||£1,257|
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. Or it can be completed online, printed and posted back to HMRC (Pay As You Earn HM Revenue and Customs BX9 1AS).
You need to enter details about your employment on the P50 form including your gross earnings and tax paid from your P45, along with your personal information and where you’d like your refund to be sent.