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.

2. 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.

3. 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.

4. 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.

5. 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.