Am I paying too much Income Tax?

18-Jan-2010

There are bands for income tax, and the percentage of your income that you pay as tax depends on which earning bracket you fall into.  The percentage increases the more you earn, and the highest level of income tax is currently 40%, but this is shortly to change to 50%.  The first £6,475 is your Personal Allowance and is not taxable.  It is sometimes possible that you are paying too much or too little income tax, and you should be aware of how to check for this because you can claim back any overpaid money. 

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Every UK employee is assigned a tax code, and you can find yours by looking on your latest payslip.  A tax code is made up of several letters and a number, and if you multiply the number in your tax code by 10, you will find out how much you are able to earn in a year before you start paying income tax.   For example, if you have the tax code 647L during this tax year this means that you are eligible for the basic Personal Allowance.   You can find out more about tax codes on the DirectGov website.

Why might I have paid too much income tax?

One of the most common reasons why people pay too much income tax is that they have just changed jobs and are put onto an ?emergency tax code? until HMRC has decided what their new tax code should be.  If you are waiting for your P45 form to come through from your previous employer (so that you can give it to your new one), this is likely, because your tax details will not yet have been transferred.   Also, if you have started your first job and don?t therefore have a P45 form, your employer will give you a P46 form to complete, and it may take a bit of time for HMRC to process this and allocate you the correct tax code.

The emergency tax code automatically puts you on a Basic Personal Allowance, so if this is not correct for your personal circumstances, you may be paying too much income tax for a period of time.  If your tax code has ?L? or ?BR? included, you will be (rightly or wrongly) paying Income Tax on everything you earn above your basic Personal Allowance.

Other reasons why you might pay too much income tax include only being employed for part of the year (HMRC spreads out the tax you pay over a whole year so that you get the same income each month), changing from full-time to part-time work, or vice versa, or becoming self-employed.  If you had more than one job over the year, or if you stopped working completely and didn?t receive an income for the rest of the year, it?s also likely you overpaid income tax in that year.

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