Top 5 PAYE Employee Tax Mistakes and How to Avoid Them

Just because you have a salaried income does not mean that your tax affairs are simple. Here are the most common mistakes we see in PAYE employees.

Why Mistakes Occur

For PAYE employees, there are a lot of assumptions. The assumption that HMRC has given you the right tax code, that your employers’ payroll department will take the correct tax off your pay, and that if you have paid too much tax, you automatically get it back. Then there’s the assumption from HMRC that everyone is checking their own tax codes. This is where problems start to occur!

By making these assumptions, the reality is that a lot of employed individuals have been using incorrect tax codes without knowing it, which often leads to them overpaying (or in rare cases, underpaying) tax. Unfortunately, checking your own tax can be a long, complicated process, and there aren’t enough resources available for everyone to be able to do this themselves.

To help you avoid paying the wrong amount of tax, here are the most common mistakes we see at the Tax Refund Company, and how to avoid them:

  1. Not Declaring All of Your Income

You are subject to income tax from all sources of income, not just your main employment. This includes rental income, income from a second job or ‘side hustle’, foreign income, etc. By not including all your income, your tax code won’t match, and you will likely end up underpaying on your taxes. This might sound like a benefit now, but you won’t be so happy about it when HMRC finds out and charges you penalties. More on this later.

To fix this, keep a clear record of all income that you receive from all sources. You should also be keeping a record of any dividend income or capital gains generated by selling shares or other assets. These all need to be included in your self-assessment form to ensure you’re paying the right amount of tax.

  1. Not Claiming All Allowable Expenses

Just as you can pay too little tax, you can also pay too much. In fact, we estimate that around half of PAYE employees are overpaying on their taxes! One of the main reasons for this is employees failing to claim everything that they’re entitled to.

You can claim expenses for things that are required as part of your job; we don’t tend to think of this as a salaried employee, but anytime you have to travel to a meeting, purchase your own office supplies, reapply for work-related licences or subscriptions, you are racking up business expenses. By keeping receipts as well as a detailed record of every time you pay for a business expense, you can accurately report them when doing your taxes and thereby reduce your taxes.

  1. Not Checking Your Tax Code Every Year

You might believe that just because you have the same job or the same salary as you did the previous year, your tax will also stay the same, but this isn’t necessarily the case. HMRC issues you a new tax code each year, and that’s how often you should be checking it.

Any changes to your income, expenses, allowances, changes to inflation, new tax rules and allowances could all affect the amount of tax you should be paying. This is all before taking into consideration that HMRC is not perfect; they can and do make mistakes. You need to stay on top of checking their work so that you aren’t left out of pocket.

  1. Not Following up with HMRC After a Claim

If you have reviewed your tax and discovered that you have overpaid, you can claim a refund from HMRC. Most people will happily accept whatever refund they’re offered, but if HMRC made a mistake before, why wouldn’t you assume they could make one again?

It’s so important that you check the results of your claim after HMRC has responded, to make sure that you’re going to be refunded the correct amount. We have helped clients in the past where HMRC has miscalculated and offered a refund to our client that’s a fraction of the size of the refund they were actually owed. We have also seen clients who have made a claim and HMRC has decided that the client underpaid on their taxes; we then had to fight on behalf of this client to make HMRC correct this mistake.

Making a claim can take a lot of time, and reviewing the results of that claim can sometimes take just as long. If you believe you’ve overpaid tax, or would like to check ‘just in case’ (you would be surprised how many people have no idea they’re overpaying tax), we have a free survey here. If you then want to claim your tax refund, we can help you do that and remove the hassle of reaching out to HMRC yourself. Just get in touch and we’ll be happy to help.

  1. Not Telling HMRC You’ve Underpaid on Tax

As previously mentioned, if you discover that you’re underpaying tax, you should tell HMRC so that you can arrange to repay what’s owed. Underpaying tax is not saving you any money; when HMRC finds out (not if), they will demand that money back with interest and possibly with penalties on top. It’s better for you to repay the money as soon as possible to avoid paying more down the line. You can always do this with a payment plan so it’s done in a way you can afford over time.

At the Tax Refund Company, if our review leads us to believe that you might have underpaid tax, we will not tell HMRC for you. We will give you all the relevant information that you should provide to HMRC, but we won’t reach out to them directly. However, we will strongly encourage you to tell HMRC to save you a headache and potentially hefty bill down the line.

Do I Have to Review My Own Tax?

At the Tax Review Company, we want to remove as much of the stress and administrative burden of reviewing your own tax as possible. If you are a PAYE employee and want to check whether you’re owed a tax refund, we will conduct a review for you and can then seek a refund directly through HMRC. Our team of expert tax reviewers will make sure that your tax code is correct and calculate how much we believe HMRC has overtaxed you for the current tax year, as well as the previous four.

If you would like to join the 3+ million clients that have used our services, simply get in touch.


Teachers and Tax: Are You Missing Out on Tax Refunds?

Of the over 10,000 applications we’ve had from teachers, deputy head and head teachers, 67% of them have paid too much in tax and were due a refund from HMRC.

Why Are Teachers Often Due Refunds?

Every individual may be eligible for certain allowances, tax reliefs, and benefits, depending on their own circumstances and whether or not they meet eligibility criteria. However, some professions or sectors are more likely than others to be able to make additional claims for costs incurred as part of their job. Teaching is one such profession.

From travel to textbooks, there are a myriad of expenses that teachers could and should be claiming on each tax year to reduce the amount they pay in tax, but it’s still not widespread knowledge that you can do this. Obviously, it would be preferable if all of these expenses were able to be reimbursed directly by schools, however, it’s often the case that schools don’t have the budget to offset ad hoc costs that teachers incur. The consolation is that at least these expenses can be made tax-free (where applicable), and at the Tax Refund Company, our goal is to make the process of claiming tax refunds as straightforward as possible.

What Types of Expenses Qualify for Tax Rebates?

There are lots of work-related expenses that teachers can claim on:

  • Travel Expenses: This does not include your usual work commute, but does include school days out, travel to teacher training days, and other journeys that are necessary for your job, but go beyond your expected daily commute. There are limits on claiming mileage which can be specific to the type of vehicle used. Make sure you check with uk to understand exactly what you can claim on.
  • Specialist Clothing: Once again, the clothes that you wear day-to-day at work will not qualify for tax relief, however, certain departments might have an expectation of specialist clothing which you can claim tax relief on. For example, if you work in the P.E. (physical education) department, you can claim for the sportwear required to do your job. If you work in the science department, you might require lab coats or other protective clothing to work safely. Both of these examples would qualify under ‘specialist clothing’.
  • Books: This is the most obvious expense, and also the most overlooked. If you buy replacement textbooks for students or books for research purposes, make sure to keep receipts for every purchase that won’t be reimbursed by the school.
  • Training and Professional Fees: Union memberships, registration with regulators and professional bodies, and any additional qualifications required while in employment can all potentially be claimed as a business expense.

How Much Tax Could You Claim Back?

HMRC has a cut-off point; they will only allow you to claim a refund for the previous four tax years, not including the current tax year. This means that, if you have kept accurate records of your income, expenses and any allowances you’re entitled to (now or over the past four years), then you could claim a refund from HMRC on those overpaid taxes.

When your salary lands in your account each month, income tax has already been taken off depending on your marginal rate of tax (beginning at 20% for everything earned above your Personal Allowance). Any purchases you make are therefore considered ‘tax paid’. However, if your expenses qualify as work-related, they should be tax free. You can therefore claim back the tax paid on those items up to four years after paying for them.

For example, if you are a basic rate taxpayer (paying 20% income tax), and you spend £400 across the year on school materials, union fees, etc, then you can reclaim 20% of that £400 – giving you a tax rebate of £80.

Don’t Leave Money on the Table

An £80 rebate might not sound like a lot in the grand scheme of things (although it’s certainly nice to have) but the average refund that we’ve been able to secure for people working in the education sector is £326. These refunds include money owed through incorrectly applied tax codes, missed allowances or HMRC mistakes, not just claiming on expenses, but any of these reasons could also apply to you.

To date, the largest refund that we’ve secured for a teacher is £8,915!

We have also noticed a trend, which is that the higher up your position in the school is, the greater chance you’re overpaying on taxes; deputy and head teachers are more likely to be owed a tax refund, and more likely for that refund to be larger than for the average teacher.

At the Tax Refund Company, we have been reviewing taxes and arranging for refunds for over 30 years on an individual level, or across entire businesses, institutions/schools, professional bodies and unions. We want to remove the stress of checking your own tax codes by conducting free tax reviews for you. Off the back of our review, if we believe that you’re owed a refund from HMRC, we will contact them directly to arrange for your refund to be issued.

If you want to check whether you’re owed a tax refund, or you want to refer our services to someone else, then get in touch and we’ll be happy to help you.

 

 


Vinted, eBay and Airbnb – Will I Be Taxed on my Second Income?

As of 31st January, companies like Vinted and eBay are required to report to HMRC on how much money their users are making. The question is, will this affect your income tax?

What is the ‘Side Hustle Tax’?

A second source of income separate to your regular income is colloquially referred to as a ‘side ’hustle’. One of the most common forms of secondary income is from reselling items on platforms like Vinted and eBay, where people sell their old, unwanted possessions rather than throw them away. Sites like Etsy and Airbnb also fall under this category, as you’re selling products or services to others.

When HMRC announced their rule change, stating that platforms had to report on the money that their users were making, a lot of people panicked that they would suddenly be getting taxed whenever they sold their old shirts on Vinted, but this isn’t the case.

The rules on how you’re taxed have not been changed (as they pertain to secondary income), it’s just that HMRC wants to crack down on individuals who are using digital platforms to turn a profit and not pay any extra taxes. The so-called ‘Side Hustle Tax’ therefore doesn’t really exist; it’s just a part of regular income tax.

When Do I Have to Pay Tax?

In the UK, HMRC has a trading allowance of £1,000 per year, and anything below that does not qualify for taxes. If you exceed this allowance, you still might not pay any taxes, depending on how the money was made.

If you list your second home on Airbnb, you’re making an income from it. If you make earrings and sell them on Etsy, you’re making an income from it. If you decide you don’t want your old video games anymore and you put them up on eBay for half of what they originally cost you, you’re not making an income from it.

The key things that HMRC will be looking out for are individuals who are buying items with the express purpose of reselling them for a profit. If you’re scouring charity shops for cheap clothes and putting them on Vinted with a markup, you may have to pay tax on this. Likewise, if you’re putting up items frequently, then HMRC might flag this as an income stream.

How Do I Tell HMRC?

Failing to declare your income is a serious offence and can lead to penalties, interest on unpaid tax, and an investigation by HMRC. If you suspect that your secondary income is over the trading allowance, you should tell HMRC about it, even if it turns out that no additional taxes are due.

You will need to register with HMRC if you’re over the £1,000 trading allowance in a single tax year (these run from 5th April to 4th April). You have until 5th October the following tax year to register for Self-Assessment. You then have until 31st January to submit your tax return.

You should be able to fill out the necessary forms yourself, but if you’re having trouble understanding what to do, then you can visit Gov.uk for more information.

What About My Main Source of Income?

You’ll need to tell HMRC about your regular employment as well, so they know what you’re making outside of the ‘side hustle’ and how much you’re already paying in income tax and National Insurance. It’s possible that your secondary income will push you into the next tax bracket, which will mean paying a higher rate of tax – but you’ll only pay a higher rate on the amount above that threshold.

Just because HMRC are making platforms report your sales to them, does not mean that HMRC will work out your taxes for you. It’s still up to you to provide them with all the information they need in order to tax you correctly.

HMRC can and do make mistakes, so it’s important that you keep thorough records of everything in order to fill out your Self-Assessment tax form correctly. This includes keeping a record of all of your sales, as well as costs you incurred on postage, platform fees, etc.

The Tax Refund Company are specialists in ensuring employees have been taxed correctly, with more than 4 in 10 employees getting money back after taking advantage of their comprehensive tax review.



Here at The Tax Refund Company, we love hearing from our customers!

Here at The Tax Refund Company, we love hearing from our customers! Here’s just one example of what they tell us about our services…

“Dear Sir / Madam, I write to thank you for looking into my tax liabilities and for returning all P60’s and tax coding notices. It puts ones mind at rest that I am only being charged the tax that is due from my combined pensions. Thank you once again for giving me piece of mind. Margaret P (Mrs.) – Cheshire”