UK taxpayers overpaid £3.5bn in Income Tax last year due to errors in PAYE codes and tax complexity. Research from a Freedom of Information (FOI) request revealed that 5.6 million people overpaid HMRC, despite paying Income Tax through the PAYE system.
HMRC is responsible for issuing tax codes to pension providers and employers, and sometimes makes mistakes by issuing incorrect codes. The onus is on the taxpayer to Check that their tax code is correct.
HMRC requires up-to-date information to ensure codes are accurate and mistakes can be made for several reasons, including:
- An assumption that an employee is still receiving company Benefits In Kind (BIK), such as Company cars, healthcare and other benefits, even though such benefits may have ceased.
- Incorrect assumptions about an employee’s additional income, such as rental income, interest, dividends or freelance work.
- An employee working several different jobs at one time, or over the course of a tax year.
- Out-of-date or late employer payroll information.
The FOI request revealing that 5.6m taxpayers overpaid £3.5bn to HMRC came from UHY Hacker Young. Its partner, Neela Chauhan, warned, “Millions of people are paying the wrong amount of tax simply because HMRC is almost guessing what they earn. For too many people, this will go completely unnoticed.”
The issue has been exacerbated by an increasing complexity of PAYE codes, for example, with the inclusion of the High-Income Child Benefit charge and the looming winter fuel repayment collection due to be administered through PAYE.
PAYE refunds
HMRC issued an update on PAYE refunds in their 2025 Employer Bulletin.
- Refunds are no longer issued automatically by cheque after 21 days: employees will need to take action to be able to receive their money.
HMRC state that the quickest and easiest way to claim a refund, or to check if a refund is due, is through the HMRC app:
- Open the app and navigate to the 'Pay As You Earn (PAYE)' section.
- If you are due a refund, you will see a green 'Claim' button showing the amount owed.
- Tap the button to start your claim, and your refund will be paid directly into your bank account within one week.
If a taxpayer has not signed up for HMRC's online services, they can still claim their P800 refund online at 'tax overpayments and underpayments'.
Even where HMRC believe a refund is not due, it is important to check the calculation provided by HMRC as there may still be errors within it based on out-of-date information or incorrect assumptions.
Useful guides on this topic
How to check your PAYE Code
Is my PAYE coding correct? How does HMRC work out tax codes? Why do people ignore their P2 code change notices? Follow the links to expert guidance.
Payrolling Benefits In Kind: at a glance
Payrolling Benefits In Kind replaces P11D reporting, as taxable benefits are included in taxable pay when calculating the PAYE deducted from payments of wages and salaries to employees.
Form P45
What is HMRC Form P45? What do I do with Form P45?
What is the 2025/26 PAYE tax code?
What is the 2025-26 PAYE tax code? What do the different types of tax code prefixes and suffixes mean?
External links