Hundreds of thousands of people may miss out on tax refunds if they're not careful. Six million new refunds are due, some in the £1,000s, recently discovered by the Revenue during an annual check of who paid what. Yet over a million will also see demands telling them they owe more.
Yet it's not all plain sailing – even little things like them having the wrong address can make a big difference. So here are the ten things you need to know.
1. A ten second tax code guide These seemingly dull digits have a critical impact on your finances as they tell employers how much tax to deduct. Take the most common 747L code. Add a five to the end of the numbers to discover what you can earn before income tax is taken.
In this case it’s £7,475. Even small errors can lead to mistakes of £100s, so this really does matter. You’ll find your code listed on your ‘coding notice’, payslip or P45. Each income source (job, private pension) will have a different tax codes. Check them all!
2. Problem affects employees, not the purely self-employed Only employees (full or part-time) and some with private pensions receive a tax code, as this is all about Pay As You Earn deductions. If you’ve more than one job or pension, have changed job recently, get employee benefits such as medical insurance or have recently retired, you are the most likely to be affected.
3. The new rebates are for the 2003-08 tax years It may seem confusing, but actually HMRC is working backwards to spot the errors; last year it looked at 2008-10. There are 6 million rebates due, but that doesn't mean it'll go to six million people, as one person could be entitled to as few from distant years. Refunds average £300 per person and include 0.5% interest, and cheques are due between now and December 2012.
4. Free tax code calculator to get rebates quicker To avoid waiting, check whether your tax code is correct now. To help you can use my free tool at www.taxcodechecker.com Just plug in your details and it'll give you a steer on whether you may have over or underpaid in any year, and explains how to reclaim.
5. Urgent. If your address is wrong, you'll miss the rebate They are posted to your registered address. Unfortunately, many who’ve moved wrongly assume employers update it. As a result, hundreds of thousands of people risk missing a rebate or the demand to pay up. So make sure HMRC have your correct address.
6. This could be big money Since 2010 we’ve been drenched with tax rebate success stories due to tax code errors. The biggest so far is £5,000, for someone who found they had been deducting for a company car and medical insurance that he didn’t have.
7. 1.2 million will be told they must pay back This is the other side of the coin, and could be nasty for many. The underpayments that have been found are for the 2010/11 tax year and typically are about £600. It’ll usually be deducted gradually from next tax year’s pay packet, though some pensioners get three years to pay. Those who owe over £3,000 will be asked for a lump sum back – if you can't afford that, then speak to the HMRC and it should allow a gradual repayment plan.
8. The ‘fight paying back’ route’s unlikely to work this time Last year, I wrote about the Extra Statutory Concession A19 that helped some escape payment where the taxman made errors AND took over a year to inform you. It may still work for older cases, but not new ones, as these errors are too recent for the 'over a year' bit to take effect. HMRC will write off demands under £50 though.
9. Warning! Don't believe the spam. Everyone needs to know HMRC never emails you to tell you about a rebate. Sadly whenever news of an error breaks, the fraudsters use it as an opportunity to call or email, claiming to be from HMRC and offering a rebate. What they are really after is your bank details so they can raid your account. 10. If you're not sure contact HMRC. If you think your code may be wrong, the answer is to contact Her Majesty’s Revenue and Customs. It’s probably simplest do to this by phone, so you can put any questions to a real person – the number is 0845 300 0627. And the final simple warning is 'remember this next year'. When you get the letter through the post telling you what your tax code is, turn it around and on the back there should be a description of why it is what it is. It's worth spending a few minutes going through that there and then to prevent any problems. After all, while a rebate's nice, it’s even better to have the cash stay in your pocket.
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