WHAT YOU NEED TO KNOW TO AVOID DISCREPANCIES AND POTENTIAL FINANCIAL STRAIN

According to research, almost a third of UK adults who have checked their tax code (31%) have found that they have been on the wrong one at some point. Additionally, one in six (15%) UK adults do not know if they are on the right tax code.

The findings also reveal that nearly a third (31%) of UK adults who have examined their tax code discovered errors at some stage, with 6% realising they were on the incorrect tax code within the last year [1].

SIGNIFICANT OVERPAYMENTS TO HMRC

Three-quarters (75%) of those who found they were on the wrong tax code have overpaid HMRC by an average of £689, amounting to a staggering £5.8 billion as a nation [2]. The findings also highlight that nearly one in five UK adults (18%) have never checked their tax code. Those who check their tax code typically do so once every 16 months.

COMMON REASONS FOR CHECKING TAX CODES

Britons most commonly check their tax code for no specific reason (19%) or out of habit (17%). Others check due to a job change (12%) or because they have previously been on the wrong tax code (8%). Among all UK adults, less than half (42%) are confident that their current tax code is correct.

WIDESPREAD CONFUSION ABOUT TAX CODES

Moreover, almost four in ten (39%) do not understand their tax code, which puts them at a disadvantage from the start. Over two-thirds (69%) admit they do not know the rules around claiming back overpaid tax. Less than one-fifth have employed professional services to manage their personal taxes (18%), down from three in ten in 2023’s study (29%).

UNDERSTANDING YOUR TAX CODE

Your tax code is composed of a series of numbers and letters, which HMRC uses to determine how much income tax you owe. For example, 1257L is commonly used when you have a single source of income through a job or pension and allows you to earn £12,570 a year (your personal allowance 2024/25) before paying income tax.

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Source data:

[1] Research conducted by Opinium among 2,000 UK adults, with fieldwork conducted between 19th and 22nd March 2024. On a nat rep survey of 2000 UK adults, 317 know how much money they overpaid when on the wrong tax code. 317 / 2000 – 52890000 (UK adult population) 

[2] 8383065 (shorthand 8.4 million). £689 – 8383065 5775931785 (shorthand £5.8 billion).

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.