Millions of workers and pensioners may be paying more income tax than necessary, experts warn. Each year, millions of taxpayers have incorrect tax codes applied, leading to overpayments that often go unnoticed. It is vital for individuals to check their tax codes themselves, as it is their responsibility rather than that of their employer or HM Revenue & Customs (HMRC).
Accountancy firm UHY Hacker Young submitted a Freedom of Information request revealing that 5.6 million individuals overpaid a combined total of £3.5 billion in income tax in the most recent tax year. On average, each person overpaid approximately £689.
HMRC reimbursed about £3 billion to 4.2 million taxpayers who had overpaid during the 2024/25 tax year, according to data obtained by MoneySavingExpert. However, HMRC is not legally required to notify individuals of overpayments or issue refunds automatically.
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A tax code, shown as a series of numbers and letters on payslips or pension statements, instructs employers and pension providers on the amount of income tax to deduct. For the 2026/27 tax year, the most common code is 1257L, corresponding to the standard personal allowance of £12,570. If a code differs and the reason is unclear, it is important to investigate.
Errors often arise following life changes, such as starting a new job without providing a P45, ceasing workplace benefits like a company car, receiving income from multiple sources, or beginning to draw a pension. In these cases, HMRC may be using outdated information, resulting in incorrect tax codes.
Individuals can claim back overpaid tax for up to four years. Those suspecting incorrect codes are encouraged to check and claim refunds online via the HMRC app or personal tax account at gov.uk.
Stefani Williams, Partner at financial advisers Holden & Partners, highlighted the issue: “Tax codes can change after events such as changing jobs, starting to draw a pension, or receiving workplace benefits. It’s an easy detail to overlook. These situations typically do not correct themselves automatically, so taking a little time to review your tax position can make a significant difference.”