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Every year millions of Brits fail to claim a tax refund, meaning HM Revenue & Customs are left with an obscene hoard of unclaimed money. Whilst lots of us have a vague inkling that we might be owed something, surprisingly few of us take the time to find out what that something actually is.

Claiming tax back isn’t as difficult as it sounds, so stop procrastinating and claim yours today. Easier said than done? Not with the help of us Magpies who claim tax back for fun! We’re not always owed it, but hey, if you don’t ask you don’t get. We’ve got it all covered here, from how to get a tax refund to tax refund forms. Read on to get what’s rightfully yours…

• What is a tax refund?
• How do I know if I’m owed one?
• How do I claim my tax refund?
• Beware of scams

What is a tax refund?

If you’ve paid too much Income Tax either through work or your pension, then you might be owed a tax refund or ‘tax rebate’ as it’s also known. There are lots of reasons why you might have ended up paying too much tax, such as you leaving work in the middle of the tax year or your employer getting your tax code wrong (we look at more reasons further on in the article).

Lots of people wrongly assume that if they’re owed a tax rebate it’ll automatically be sorted out for them. Well, if you take this approach you could end up waiting a very long time, as HM Revenue & Customs (HMRC) are generally NOT obliged to inform you of what you are owed. Typical.

How do I know if I’m owed one?

Most people start wondering about claiming a tax refund once they’ve left their current job, which isn’t surprising really as it’s then that you generally need as much money as you can lay your hands on.

But it’s also worth remembering that you don’t have to have left your job to be owed a tax rebate – you could still be owed one even if you’re still in employment.

According to Directgov there are many scenarios that might have led to you paying too much tax, either through work or your pension. These include:

Work

• your employer used the wrong tax code
• you started a new job and had an emergency tax code for a while
• you only worked for part of the year
• you had more than one job at the same time
• you didn’t tell HMRC straight away about changes to benefits you got through your work
• your circumstances changed – perhaps you were made redundant or became self-employed and therefore your income reduced
• other earnings like investments or rental income reduced but you didn’t tell HMRC
• you made a mistake on your tax return
• HMRC made a mistake with your tax

Pension

• your pension provider has used the wrong tax code by mistake or they don’t have the right personal information for you
• your taxable state benefits/other income has reduced and HMRC don’t know about it – which means the amount of income included in your tax code is too high
• the amount of annual State Pension included in your tax code is wrong
• you have more than one tax code, because you have several pensions or pension and employment income, and you haven’t used up all your allowances on your first tax code but your other tax code assumes that you have
• you paid tax on a retirement annuity before April 2007 (where 22% tax was taken off before you received the pension but you were a non-taxpayer or 10% taxpayer
• you have received one or more pension lump sums (also known as ‘trivial commutation‘) which are payments taken instead of a small monthly pension

Any one of these scenarios could mean that you’re due a tax refund, but if in doubt contact your local tax office for advice.

What is a tax code?

Your tax code lets your employer (or pension provider) know how much you’re allowed to earn before you start being taxed. Once they know that amount they can make tax deductions from your wages or pension pay outs accordingly.

Your tax code isn’t some unknown, mythical statistic, accessible only to those wanting to tax you! You can actually find it on both your P45 and ‘PAYE Coding Notice‘, the latter of which you’ll usually be sent before the start of each new tax year.

The code will usually include a series of numbers followed by a letter, eg 647L. If you multiply the code number by 10 (so, 647 x 10) you’ll get the amount you’re allowed to earn before being taxed.

Not all tax codes follow this format, so don’t panic if yours is different. You might for example have two letters but no numbers, or an L after the numbers whilst your colleague has a P after theirs – find out what the various tax codes mean here.

Your tax code should reflect your personal circumstances and if it doesn’t you need to contact your local tax office immediately.

What is a P45?

As soon as you start work your employer will organise your P45, which is basically a record of what they’ve paid you and the tax they’ve deducted from your wages. It’s made up of four different parts (part 1 is sent to HMRC and you keep parts 1A, 2 and 3), and contains really important details such as your tax code, PAYE (Pay As You Earn) reference number and how much your employer has taxed you.

Once you’ve left work make sure that your employer sends you your P45 as you’ll need it to claim your tax refund. Even if you’re not claiming a tax refund still make sure you get it – your employer is legally obliged to hand it over.

How do I claim my tax refund?

How you claim your tax refund will depend entirely on your circumstances. If you left work and…

• Got a new job within four weeks

Then it’s down to your new employer to pay you what you’re owed. Just present them with your P45 parts 2 and 3 (keep part 1 for your personal records), and they will include your refund in your wages.

• Were unemployed for at least four weeks, retired (and aren’t getting a pension from your old employer) or returned to studies

Then you’ll need to fill out a P50 form (which you can download here) and send it along with parts 2 and 3 of your P45 to your local tax office (keep part 1 for your personal records). If you’re owed anything it’ll be sent to you by post, along with a fresh P45 for you to keep.

• Claimed Jobseeker’s Allowance, taxable Employment and Support Allowance or taxable Incapacity Benefit

Unfortunately all of these benefits are taxable, so they’ll ultimately affect how much of a refund you get. Start off by sending parts 2 and 3 of your P45 to the benefits office and keep part 1 for your own records. The benefits office will then pay you what you are owed either at the end of the tax year or after you’ve stopped claiming.

• Retired and DON’T receive a pension

Then you’ll need to fill out a P50 form (which you can download here) and send it to your local tax office along with parts 2 and 3 of your P45 (keep part 1 for your personal records). You’ll then have your refund sent to you through the post.

• Retired and DO receive a pension or retirement annuity through PAYE

Then the first thing to do is contact your local tax office to inform them that a mistake a has been made. If you’re due a tax refund you’ll either receive it through your pension payments or as a lump sum.

• Ceased being self-employed

If you stopped being self-employed and think you might be owed a tax refund, HMRC will pay it back to you once you’ve completed your Self Assessment tax return. According to Directgov you’ll also have to inform HMRC how you’d like your refund to be paid. It can be:

• paid into your bank account
• paid to your selected nominee (eg an accountant)
• sent to your chosen charity
• sent straight to you (via post)
• sent straight to your accountant (via post)

If you complete your Self Assessment online you’ll find out straight away how much you are owed – find out how you do it here.

Don’t worry if the thought of filling in a Self Assessment fills you with dread, as Directgov explains it all in detail. Visit the site now.

Beware of scams

There are lots of scammers out there who spend their time thinking up new and devious ways of conning us out of our money. Unfortunately for us, their techniques tend to be very sophisticated, and in recent years their attentions have been turned to the issue of tax refunds.

To make sure that you’re never caught out, bear these useful tips in mind:

• HMRC would NOT contact you via email with information relating to you being owed a tax refund
• HMRC would NEVER ask you to supply them with personal details relating to any issue via email
• Regardless of how genuine the email may look (eg HMRC logo and style of writing) trust us, it won’t be
• NEVER click on any of the links imbedded within the email – they will take you to a website that could jeopardise the security of your computer, and in turn your personal details
• NEVER disclose personal or payment details over the phone until you’re 100% happy that the caller is genuine. If in doubt call the company who the caller is supposedly representing
• Forward any HMRC emails that you are unsure about to phishing@hmrc.gsi.gov.uk or helpdesk@directgov.gsi.gov.uk

For more information on how to stay safe online take a look at our article on identity fraud.

Useful Links

• Identitytheft.org.uk
• Identity fraud: How to stay safe online
• Directgov
• HMRC
• Find your  local tax office
• Download your P50 here

If you’ve successfully claimed a tax refund, be sure to comment below – we love hearing from you!