I am always surprised at how many employees who are paid under PAYE have no idea about their tax affairs and are therefore paying too much tax. Are you one of them? You need to ask yourself: Am I paying too much tax?
Do you know what your Tax Code is? And more importantly how much it should be? Have you ever received a PAYE Coding Notice and did you read and take time to understand it?
In the 2015/16 tax year, which covers the 12 months from 6 April 2015 to 5 April 2016, everyone pays no tax on their first £10,600 of income (this figure is correct at the time of writing but may subsequently change). This means most people will have a tax code of 1060L. For the 2014/15 tax year the usual code was 1000L.
If you have a different code do you know why? If you don’t then you should call HMRC (HM Revenue and Customs) on 0300 200 3300 and ask them – but please allow at least 40 minutes to get through!
Let me tell you about two case studies:
An employee left her job with one of the top 4 banks and set up her own business. I reviewed her old tax code, which just looked wrong. Then going back over a few years managed to get her a tax refund of £3,161.41.
The problem was that the bank had told HMRC about some benefits in kind, so they correctly altered her tax code, but the employer then processed her salary as if they had paid her a sum equal to the benefits in kind. She was therefore taxed twice.
The second case was where an employee had two jobs. HMRC had placed all her personal allowances with the second job that she eventually stopped. Her main employment suffered with a tax code of BR. This meant everything she earned was taxed and she suffered with no tax-free amount for years. Again I was able to get her a refund.
However in both cases the refunds could have been more but we were restricted by how many tax years we could go back.
Action: you need to check and make sure your tax code is correct and keep checking it every year. If you ever get a PAYE Coding Notice letter then read it!
I cannot guarantee you are due a refund but are you certain you are paying the correct amount of tax?
If you wish to discuss any of the points mentioned above, then please get in touch.