When you receive your monthly payslip, chances are you give a cursory check that the amount going into your bank account is as expected.
But what if it isn't correct? And not just this month, but what if it has been wrong every month going back several years and you just didn’t realise?
It seems unlikely. After all, it is up to your employer and Her Majesty’s Revenue and Customs (HMRC) to ensure you have the correct tax code. Right?
Wrong. This is a common misconception which costs taxpayers millions of pounds in lost income every year, as David Malik-Davies, the business development director with The Tax Refund Company, explained.
He told Headteacher Update: “People who pay tax via the PAYE system assume the tax code they get from HMRC is the correct one.
“They don’t realise that it’s their responsibility to check it themselves and to inform HMRC if it is wrong. People mistakenly believe that this is the responsibility of their employer. As a result, around a third of UK taxpayers have paid too much in one or all of the last four years.”
According to Mr Malik-Davies, there are two employment sectors where over-payment of tax is very high. One is healthcare and the other is education. Among senior leaders in schools, it is estimated that almost eight out of 10 are paying too much.
“Members of the teaching profession have a tendency to assume their tax code is correct, whether they are employed by the government in state education or whether they work in the private sector,” Mr Malik-Davies continued. “Being in a higher rate tax bracket complicates this even further.”
Looking back over the statistics from the past four years – the cut-off point at which overpaid tax can be reclaimed – The Tax Refund Company estimates that thousands of senior leaders have earned less than they should have because their tax code is incorrect. In fact, school heads and deputies represent the highest proportion of those over-paying in any employment sector.
So, how much are you over-paying?
The figures are stark. Of the 929 headteachers who have completed a review with The Tax Refund Company since 2018, more than three-quarters were found to have paid too much. The average refund was £400.52, but in one case a headteacher received nearly £9,000.
Among the 1,020 deputy heads who have had their cases reviewed in the past four years, almost 70% had the wrong tax code, with £254.54 being the average refund. The largest was more than £6,300.
Teachers are also paying too much. More than 67% of the 9,227 who completed a review had overpaid, receiving an average refund of £154.60 – the largest being almost £5,300.
How can this be? Well, the system relies on employees – the taxpayer – having sufficient knowledge and financial acumen to be able to check their tax code and to be confident about it being correct.
“The reality is that very few people can do that,” Mr Malik-Davies explained. “You can sort it out if you know what you’re doing. If you don’t know what you’re doing, then you have no idea if what you’ve done is right or wrong.
“You could try to check your own code and you might think you have something to tell HMRC about your personal circumstances. But even if you do, that does not mean you now have the correct code. You will have a new code, but not necessarily the correct one.
“You might be able to get a £100 refund from HMRC after contacting them yourself, but how do you know that you weren’t entitled to receive £200 or £400?”
Each individual tax code is based on information that HMRC holds and will include various allowances. Everyone is entitled to earn £12,570 tax-free, but they might also be able to claim for working from home and buying equipment to do their job that their employer does not provide, for example.
Other factors that might affect their tax code is a company car or gym membership, which are considered income in kind. These perks might not apply much to the teaching profession, but they give an idea of how complicated the process can be.
Tax codes can also change at any point during a financial year, for example if you move jobs or get married or divorced.
The Tax Refund Company works with employers, teaching unions and other professional bodies to better inform taxpayers about their responsibilities and using their expertise to claim back over-paid funds.
Mr Malik-Davies added: “If you don’t know how to do something yourself, then you get someone in to help. There is nothing unusual in that.
“The way we work is that we do the tax review for you but unless you benefit financially, we won’t charge you a fee. We guarantee two things – if you are owed money by HMRC you will get back every penny. If we happen to make a mistake which later comes to light, we will pay you back double the amount you lost.
“Most people worry that if they start looking at their tax situation, they will end up owing more. So, we also guarantee that if you get an unexpected tax demand as a result of our input, we will pay it for you – with certain terms and conditions.
“Our service is designed to remove any worries or concerns, and we give clients something no-one else can give them. We are confident of getting back everything to which they are entitled.”
Meet Paul Edwards
In June 2021, Paul Edwards, a 56-year-old deputy head earning £55,000 a year, requested The Tax Refund Company carry out a tax review, after receiving a letter from the Association of School and College Leaders explaining that two-thirds of its members had received tax refunds after a review.
Like most taxpayers, Paul assumed his employer took the correct tax from his pay and had no idea how to check his tax codes properly.
After completing a quick initial review that indicated he may have paid too much tax, Paul provided The Tax Refund Company with the information needed to complete a full review.
The review revealed that his 2020/21 tax code included a reduction for a P11d benefit he received in 2016/17 but had not received since. HMRC had left it in his code and although this should have been picked up from his employers’ annual submission to HMRC in 2017/18, it hadn’t been, and Paul had failed to notice.
There were also employment-related expenses that Paul incurred in each of the past four years and personal expenditure in the last two years on which he was entitled to tax relief as a higher rate taxpayer.
A detailed claim was prepared and sent to HMRC in July 2021. In January 2022, HMRC issued a refund for £412.43. The Tax Refund Company disagreed with the HMRC calculations and appealed. Eventually HMRC paid a further £564.17 – a total refund of almost £1,000 – and gave Paul a new tax code for 2022/23 which has increased his net income.
Further information & resources
- For more details and to request a review, visit https://thetaxrefundcompany.co.uk/seced/
- Or contact The Tax Refund Company on 0161 968 7345 and via, email at enquiries@thetaxrefundcompany.co.uk
Headteacher Update Knowledge Bank
This article has been published by Headteacher Update with sponsorship from The Tax Refund Company. It has been written and produced to a brief agreed in advance with The Tax Refund Company.