What you need to know...
Recent research reveals that millions of UK taxpayers overpaid income tax to HM Revenue & Customs (HMRC) in the past year, with many unaware that they had done so. A freedom of information request by accountancy firm UHY Hacker Young found 5.6 million people paid more than necessary, leading to a total overpayment of £3.5 billion.
As tax codes determine monthly deductions, errors in these codes can result in significant financial loss for individuals and households. Financial experts and advisers are calling upon taxpayers to regularly review their tax codes and understand their payslips, warning that relying solely on HMRC or employers may leave errors unchecked.
Scope of tax overpayments
The scale of overpayments to HMRC last year was substantial, affecting around 5.6 million individuals. Average overpayment stood at approximately £689 per person. These findings are based on data obtained through official channels and highlight the prevalence of tax code inaccuracies across the UK workforce.
The sums involved reflect either excessive deductions from regular wages or pension income due to incorrect codes being applied by employers. Although HMRC does issue refunds, this is not always automatic, resulting in many not reclaiming money owed.
Causes and implications of tax errors
Taxation errors frequently occur when an individual’s circumstances change, such as switching jobs, receiving workplace benefits, or beginning to draw a pension. The most common code for the 2026/27 tax year is 1257L, which corresponds to the standard personal allowance of £12,570.
If an employee’s code differs unexpectedly, it may be a warning of a potential overpayment. Left unchecked, these errors can lead to significant financial disadvantage, especially for those with multiple incomes or new pension arrangements.
Responsibility for checking tax codes
Taxpayers are responsible for ensuring their tax codes are accurate. Personal finance campaigner Martin Lewis highlighted the importance of vigilance, stating, “Millions of codes are wrong each year, so it’s crucial to check yours it’s your responsibility, not your employer’s, not HMRC’s.
” He further advised on his BBC podcast that individuals should not assume HMRC’s calculations are always correct, noting that mistakes happen “every year.”
How to identify an incorrect tax code
Payslips provide details of the applied tax code, which dictates how much is deducted each month. An unexpected change or unfamiliar code warrants further investigation, particularly if one’s circumstances have altered recently.
Taxpayers are encouraged to refer to official HMRC documentation or seek advice if in any doubt. Errors are most likely following events such as starting a new job, taking on additional employment, or reaching retirement age and beginning to access pensions.
Expert advice on preventing overpayments
Financial advisers routinely recommend that individuals review their tax codes after any significant change in employment, income, or benefits. According to Stefani Williams, partner at Holden & Partners, “Tax codes can change after events such as a job move, starting to draw a pension, or receiving workplace benefits.
It’s something that’s easy to overlook. The common theme is that these things don’t usually correct themselves automatically. Taking a little time to review your position can make a difference.”
Final Summary
The issue of tax overpayments to HMRC highlights a significant challenge for millions of UK residents, with the latest figures exposing both the scale and impact of tax code errors. As experts urge individuals to remain vigilant and review their tax codes regularly, there is a broader reminder that personal oversight remains the most reliable safeguard against unnecessary deductions.
Those with changing employment, new sources of income, or entering retirement are particularly at risk and should routinely examine their tax status. For those seeking additional support to manage tax records or understand HMRC documentation, digital tools such as the Pie app offer helpful resources to simplify the process.
