Why you should check your tax code – and what to do if it's wrong

If you think you've paid too much tax in the past, you must make a claim within four years, or risk losing out. That means anyone who overpaid in 2018-19 only has until 5 April 2023 to make a claim to HMRC.

After the cut-off date, the overpaid tax becomes 'closed' to claims – the only exception where you might still be able to get a refund is when the overpayment is down to an error on the part of the tax authority.

While there are lots of reasons why you may have paid too much tax, one of the most common is being on the wrong tax code. But how do you check if that's you? 

Here, Which? explains what tax codes are for, what to do if you're on the wrong one, and to claim back any overpaid money.

What are tax codes?

Take a look at your payslip, and you'll find the tax code sitting somewhere near your National Insurance number. 

You'll also find it on the coding notice you might receive from HMRC, the P60 you get after the end of the tax year, and the P45 you receive if you change jobs, and as part of your personal information if you have the HMRC app. 

The code, which is assigned by HMRC, is made up of letters and numbers. The numbers refer to the amount you can earn tax-free, and the letters tell your employer about your own situation and how that might affect your personal allowance. The letter is usually at the end, unless you live in Scotland where codes begin with an 'S', or Wales where codes begin with a 'C'.

Our guide can help you understand your tax code, which contains a list of possible letters yours might include. The most common code for 2022-23 and 2023-24 will be 1257L, which means you get the usual personal allowance of £12,570. The letter 'L' means you are entitled to receive the tax-free allowance.

Some people may have more than one tax code – for example, if you have a second job or receive a pension while working. If you notice you also have a BR or DO code, then it means your personal allowance has been used up, so you'll pay more tax on your second income stream.

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Check if you're on the wrong code

If you're on the wrong tax code, you could be paying more tax via PAYE (pay as you earn) than you should. In many cases, tax code issues are picked up by HMRC, but if you notice something looks wrong, then you should get in touch and query it.

There are a number of reasons why your tax code might be incorrect: 

• You've started a new job You may end up on the wrong tax code if your new employer isn't given a P45. This document shows income you received until you left your previous employer, and without it HMRC won't know whether you're entitled to the personal allowance.
• You earn money from a second job or receive pension income Having more than one job or income source means one of them might be taxed on a different code.
• Your income has changed Earning more or less can affect how much tax you're liable to pay.
• Benefits from your job Starting or stopping any benefits you're paid from your employer, such as a company car, accommodation or loans, will affect your income and how much tax owe.
• Taxable state benefits If you stop (or start) receiving benefits from the government that you are liable to pay tax on – for example, a state pension, bereavement allowance, incapacity benefit, or employment and support allowance – it may affect your tax code.

If HMRC doesn't have enough information about your income or tax liabilities, it may put you on an emergency tax code. This means you'll either be charged at the basic rate of 20%, or higher 40% rate on all of your pay.

The most common emergency tax code will end with M1 or W1, depending on whether you're paid monthly or weekly. 

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How to change your tax code

If you spot that you're on the wrong tax code, inform HMRC straight away; once it has enough information about your circumstances, you code will be adjusted for you. The tax office will then send you something called a 'coding notice' when it's been updated. Your employer or pension provider will also be given the new information. 

Check any payslips that you get after that time. to make sure the new tax code is appearing. 

You can tell HMRC either by using its 'Check your income tax' online service, where you can update your employment information and tell HMRC about a change in income that may have affected your tax code, or by contacting HMRC directly. If you think you're owed a refund, you can also request this via the HMRC app.

How to claim a refund 

If you think you've overpaid because of a tax code error, you might be eligible for a refund. Once you've told HMRC about the mistake, the tax office will inform you of a refund by post. 

The money will then be paid back to you through your wages by adjusting the amount of tax you pay on your payslip. Refunds for tax from previous financial years will be sent by cheque.

Of course, there's also the chance that you've paid too little tax. In which case you'll have to pay it back. To do this, HMRC will either put you on an emergency tax code, or issue you with a tax bill.