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Money Advice: Money-Saving Expert Martin Lewis checks your tax
By : Martin Lewis

Are you paying too much tax?

19 April 2011

This is an urgent clarion call for every employee in the UK to check their tax code. Miss an error and it could cost you £1,000s. The new tax year's upon us and, while it seems an innocuous few digits, your tax code instructs employers how much to take from your pay packet.

In recent years millions of these codes have been wrong, so it's crucial you check yours immediately. While you’re at it, scrutinise past codes too, as you may be able to reclaim huge amounts of overpaid tax.

The new tax year's a fresh start

The amount of tax you pay is worked out depending on your earnings over the tax year, which started on 6 April '11 and ends 5 April '12.

If you're a company employee, your company’s payroll automatically deducts your tax. Each year the Inland Revenue sends a new ‘tax code’ to employers, telling them how much to let someone earn before the deductions start.

Mistakes are common

Frankly, the entire system has been a sham and a scandal. In the two years to April 2010 the Government taxed us an estimated £1.8bn more than was due, leaving over four million people in line for rebates.

On top of that, a further 1.4 million people weren’t asked to pay enough tax, an average of £1,400 each. Many have been asked to pay that back – even if they spent it. That’s just the tip of the iceberg: many more past errors are thought to have remained hidden.

In the past few weeks we heard about another 150,000 pensioners who were given the wrong code.

Many people rightly blame the revenue, yet a big contributing factor was employers not passing on the right documents when staff changed jobs, putting 'dirty data' in the system.

Whomever is to blame, the lesson's clear: you must check your code.

Understanding your code

If you’re under 65, have one employer, no employee benefits and earn under £100,000, your 2011/12 code will probably be 747L.

The 747 bit stands for the amount you can earn before tax; just add the digit five on the end to get the exact amount. In other words, 747 becomes £7,475, the basic personal allowance most people get. The L is your tax category (L is the most common) .

Lots of small things can change this, eg, multiple jobs or company benefits such as medical insurance.

How to check for errors

Anyone can have an error on their code, but those who answer yes to one or more of these questions are most likely to.

· Have you changed jobs in the last few years?

· Do you have more than one income?

· Do you get employee benefits, eg, company car/dry-cleaned uniform/medical insurance?

· Are you over 65?

For those who’ve been sent a ‘coding notice’ (not everyone gets one), checking's easy. Go through the explanation on the letter to see if anything seems wrong. Is the right job listed as your main employment? Do you have the benefits listed?

If you don’t have the letter or find it complex, try my www.taxcodechecker.com tool which lets you enter you tax code for this year (or past years) and gives an indication of whether it's correct.

If you haven’t got a notice of coding, find your code on your payslip, P45 or P60 (ask HMRC if you don't have this). Just as important as checking this year’s code is old year's codes (find 'em on your P60). You may be one of at least 4 million people who've overpaid in the last two years.

Crucially, each income source (job, private pension) will have different tax codes, so check them all.

What to do if you think it's wrong?

If you think this year’s code is wrong or you have overpaid, solving it is simple. Just call the Revenue and it should amend your code or send a cheque if you've overpaid. The record reclaim I’ve had reported is over £5,000, so it's well worth a five-minute check.

The situation's trickier for those who unwittingly paid too little and the HMRC said: "Give us the money." The only escape is to ask for an 'A19 statutory concession’, where the Revenue gives up any tax if it incorrectly followed procedures.

There are a lot of caveats, but a parliamentary question recently revealed 25% of people who tried were successful – far more than expected.

Full info on that, as well as checking, overpayment reclaiming & fighting underpayments at www.moneysavingexpert.com/taxcodes

Double Tesco Clubcard vouchers' value
Tesco's Big Easter Voucher Exchange's on until 5 May; swap each £10 Clubcard voucher in-store for £20 to spend in departments, including clothes, Pampers nappies, beauty, garden, and some electricals. (You can redeem online in some categories.) Do check Tesco's rewards brochure first, as it gives 3x face value. More at www.moneysavingexpert.com/loyalty

John Lewis 'lifetime refunds'
John Lewis has launched a never-ending refunds policy. This replaces the previous 28-days, and means there is no time limit on when you can take items back, as long as they're in good condition. Full guide at www.moneysavingexpert.com/johnlewis

Get Martin’s FREE tips and money-off vouchers emailed straight to you each week by signing up to moneysavingexpert.com/tips

TV money guru Martin Lewis runs the consumer revenge website MoneySavingExpert.com; ensure you get his weekly e-mail so you’re constantly saving money.

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