How can you make sure your tax code is correct? Over five million taxpayers overpay with incorrect tax codes

According to the most recent data, HMRC overcharged taxpayers Pound 35 billion in income tax, primarily due to tax coding errors

According to accountants, it is "essential" that individuals verify their tax codes in order to prevent incurring increased expenses.

Taxpayers are being advised to check their pension and paystubs for errors that could be costing them money, with 5.6 million Brits paying excessive income tax primarily because of tax code errors.

According to an analysis of the most recent data available by accounting firm UHY Hacker Young, HMRC overcharged more than five million people £3.5 billion in income tax during the 2023 - 2024 tax year.

HMRC's incorrect tax code issuance is the main cause of this overcharging via the PAYE system. Under the Pay As You Earn (PAYE) system, a tax code is a string of digits and letters that HMRC uses to indicate to your employer or pension provider how much income tax should be subtracted from your pay or pension.

For instance, the common code 1257L indicates that you can receive 12,570 in tax-free personal allowance before taxes are deducted.

HMRC will continue to deduct tax based on its own estimate of income without consulting the taxpayer if the taxpayer's circumstances change and it lacks the most recent information.

According to UHY Hacker Young, taxpayers should verify that they are not overpaying through the PAYE system because HMRC is not required to verify and notify them if they have overpaid.

"Millions of people are paying the wrong amount of tax simply because HMRC is almost guessing what they earn," stated Neela Chauhan, a partner at UHY Hacker Young. Too many people won't even be aware of this. A "

In a different piece, we examine which taxes will increase in 2026.

How HMRC might miscalculate your income tax code.

For several reasons, HMRC may provide an inaccurate tax code. According to UHY Hacker Young, the most frequent mistakes result from poor communication.

For instance, even though an employee may no longer be receiving company benefits-in-kind like company cars, health insurance, or even gym memberships, HMRC may still assume that they are.

Another reason a taxpayer might receive the incorrect tax code is if HMRC makes incorrect assumptions about an employee's additional income, such as rental income, dividends, or freelance work that they are no longer performing.

Confusion over the number of jobs a person currently holds and outdated or delayed employer payroll information are two more reasons HMRC makes mistakes.

Because paper tax code notices are no longer regularly issued, HMRC's coding assumptions frequently go unchecked, according to UHY Hacker Young.

Millions of workers might not be aware that their tax code is incorrect and that they are being overcharged.

How your tax code is checked.

Accountants cautioned that since HMRC now performs fewer internal assessments to identify errors and overpayments, people should take the initiative to verify how much tax they are paying.

Your tax code can be found on any payslip or in your pension provider's payment advice (P60). Each job or pension may have its own tax code.

Your tax code will also be available if you have downloaded the HMRC app or registered for an online tax account with HMRC.

According to Youngs Chauhan, a UHY hacker, "HMRC won't always fix overcharging errors automatically." You might never receive your money back if you don't verify your tax code or PAYE computation. It is the responsibility of taxpayers to identify HMRC errors.

"People need to look for errors in their year-end PAYE summaries and tax codes. especially those who receive company benefits or non-PAYE income of any kind. A "

Even when overpayments are found, recovering the money can be difficult and time-consuming; in UHY Hacker Young's case, HMRC disputed this, so if you find out that HMRC has the incorrect tax code for you, the solution might not be an immediate fix.

"Everyone is responsible for making sure their own tax code is correct, and they can manage and update their details quickly and easily via the HMRC app or their online tax account," an HMRC representative stated. Clients should first talk to their employer about any tax code concerns.

"We are investing 500 million in digital services to help customers pay the correct taxes the first time, so fewer refunds are required, and the great majority of repayments are made on time. The "