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5 Min. Read

Does Overpaid Tax Get Refunded Automatically?

Does Overpaid Tax Get Refunded Automatically?

Tax refunds for overpaid income tax are sometimes automatically refunded by HMRC. But there are other s

ituations which mean that you need to submit an official claim for a tax refund. And if you don't, you lose out on the money you're entitled to.

The main determining factors are:

  • If you're self-employed or employed
  • Which tax rebates you're eligible for

Here’s What We’ll Cover:

Employed Taxpayers

But What if I've Underpaid My Paye Income Tax?

How Can I Overpay Income Tax When I’m Paid Through PAYE?

Paying Income Tax Through Self-Assessment

Other Tax Rebates You Must Apply For

Employed Taxpayers

As an employed person, you pay income tax through the Pay As You Earn (PAYE) system. At the end of every tax year, HMRC reconciles their accounts for each individual taxpayer. If they discover that you've paid too much tax, they'll usually refund you automatically.

You get a copy of this final calculation in your P800 letter. It arrives sometime between June and October after the tax year in question. It's very important to check it's correct because HMRC may not necessarily have all the current information about your financial situation.

Your P800 tells you how much you've overpaid by and whether you're getting your refund as a cheque in the post, or by online bank transfer through your Personal Tax Account. Bank transfer is the easiest and quickest method, your refund can be in your bank account within 5 working days. But if you don't follow the instructions to set it up within 21 days, you'll have to wait 6 weeks for a cheque instead.

But What if I've Underpaid My Paye Income Tax?

The flip-side of overpaid tax rebates is the worrying possibility of having underpaid. Now you owe HMRC. But they don't demand it back immediately in one lump sum. 

If you're paying income tax through PAYE or a pension provider and you owe up to £3,000, HMRC will take it back in installments over the next tax year. This may result in an alteration to your tax code.

If you owe more than that, or are in different employment circumstances, HMRC will write to you to tell you your options.

How Can I Overpay Income Tax When I’m Paid Through PAYE?

There are a number of ways that your income tax calculation might be wrong when you're in PAYE.

For example:

  • Incorrect tax code being applied by your employer
  • You were on an emergency tax code at the start of a new job
  • You have more than one job
  • You didn't work for the full tax year
  • You have other income sources that HMRC tax through your tax code, but they went down during the year and HMRC didn't account for the decrease
  • Your employment circumstances changed during the tax year, like reducing your hours from full-time to part-time
  • You're a student who just works during the holidays
  • Old-fashioned, human error: HMRC is made up of real humans who aren’t infallible

HMRC must have all the facts about your position and, if they don't, they can't make the correct calculation. That’s why you need to keep an eye on your tax code and any communication you get from HMRC.

Paying Income Tax Through Self-Assessment

If you pay income tax through the Self-Assessment system, you can still claim overpaid income tax back, but it's not automatic.

You request a refund for income tax overpayment when you fill in your Self-Assessment tax return as part of the overall process. It's the same as claiming any other work expenses tax reliefs and allowances.

Self-employed taxpayers know that Self-Assessment is right for them and are already familiar with this method of claiming a tax refund. But you might be unsure about whether or not you should be completing a tax return. HMRC has a useful tool you can use to check.

If you've never submitted a Self-Assessment Tax Return before, it's important to pay attention to the deadline and give yourself plenty of time to register.

When you fill in your Self-Assessment Tax Return, you'll be asked if you'd like your refund to be paid to you by cheque in the post, or bank transfer. You also have the option to put it towards your next tax bill.

Other Tax Rebates You Must Apply For

There are numerous other tax reliefs for work-related expenses that are never refunded automatically. You must submit a tax rebate claim, or you lose out.

These include, but are definitely not limited to:

  • Membership fees for professional bodies and Trade Unions
  • Buying your own tools and safety equipment
  • Food and accommodation on business trips
  • Washing your work uniform
  • Working from home
  • Mileage for business travel in your own vehicle

The tax relief regulations apply equally to employed and self-employed people. Lots of employees miss out because they assume that they're only for self-employed taxpayers.

If you'd like even more details about claiming UK tax refunds, including deadlines and penalties, there’s an in-depth guide here.


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