Extent of HMRC overcharging revealed
Recent analysis by accountancy group UHY Hacker Young revealed that UK taxpayers collectively paid £3.5 billion more in income tax than they owed in the last financial year.
This figure, uncovered through freedom of information requests, equates to an average overpayment of £625 per affected taxpayer.
Tax professionals have expressed concern at the scale of the overpayments, describing the problem as 'staggering' and 'astonishing' given the current financial pressures faced by many across the UK.
Causes of incorrect tax charges
A significant driver of these overpayments is the use of incorrect tax codes. Experts argue that HMRC often issues misleading tax codes based on assumptions about additional income such as freelance work, dividends, or rental income sometimes when these income streams no longer exist.
Further issues can arise from outdated employment information, delayed payroll updates, multiple job roles, or unrecorded changes in benefits and pension contributions. Chart Accountancy noted that even missed pension contributions not reflected in tax codes could result in excessive tax deductions at source.
Impact on contractors and higher earners
Contractors and self-employed individuals are considered particularly vulnerable to miscalculations, due to the complexity of their income streams and the potential for multiple contracts or sources of income.
Sumit Agarwal, managing director at DNS Accountants, highlighted that contractors frequently depend on both accountants and HMRC for accurate tax bills, but said many may be unaware of overpayments made until they actively query their records.
Higher earners, some of whom are no longer required to file self-assessment tax returns, may also be at greater risk, as they increasingly rely on HMRC's automated systems, where delays or inaccuracies can occur.
The importance of personal tax accounts
Tax specialists underscore the value of the Personal Tax Account (PTA) platform, which allows taxpayers to manage their affairs online, check tax codes, and rectify errors. Carolyn Walsh, a former inspector of taxes, compared the PTA to online banking, urging all taxpayers to learn how to use the tool to monitor and control how much tax is deducted.
She recounted cases where taxpayers discovered incorrect, unexplained income allocations in their PTAs, which were resolved after making corrections online.
Professional advice and taxpayer responsibility
Experts recommend that all individuals—including lower earners regularly check the accuracy of their PAYE records and tax codes. Justin Go, a personal tax accountant, emphasised that even small errors in benefit allocation or misapplied pension deductions can affect lower-income taxpayers.
Walsh further noted that while HMRC has provided access to taxpayer data, the responsibility for correcting errors remains with individuals. 'HMRC has given taxpayers access to all their data, but it has left it entirely up to them to use it to make sure they don’t pay too much tax,' Walsh said.
Actions to reduce risk of overpayment
Tax professionals encourage taxpayers to remain proactive in reporting changes in working circumstances, and to keep HMRC promptly informed about new or ceased income streams, job changes, or adjustments in pension contributions.
Lauren Monks, a director at Dolan Accountancy, advised that keeping personal records up to date and using available digital tools can reduce the likelihood of errors and financial loss. Industry experts reiterated that HMRC is unlikely to automatically flag or rectify overpayments, making vigilance essential.
Final Summary
The discovery of £3.5 billion in excess income tax paid to HMRC last year has drawn attention to the critical need for accurate tax coding and ongoing oversight by both individuals and professionals. Contractors and those with variable incomes are particularly exposed to such errors, though anyone affected by employment or benefit changes can also be at risk.
Regular checks of personal tax accounts, accurate and timely record updates, and consultation with qualified specialists are vital steps to help prevent or correct overpayments. As HMRC places the onus on taxpayers to identify and resolve mistakes, tools like the Personal Tax Account platform play an increasingly important role in managing tax affairs effectively.
Users interested in monitoring and managing their finances may find the Pie app helpful in keeping track of tax and income data alongside their professional responsibilities.
