HMRC issues warning over 'costly mistake' involving tax codes

Workers have been told to check their tax codes - and they might find they get paid some back. Taxpayers are being warned of a "costly mistake" that could see their salaries reduced due to errors in HM Revenue and Customs (HMRC) tax codes.

Workplace expert Adam Bennett from Digital ID is advising people across the UK to verify their tax code without delay. He says you might have already received a smaller pay cheque than you should have but would wouldn't know.

The caution comes in the wake of incidents where workers have inadvertently paid too much tax on their earnings, despite not being at fault. Tax codes, which dictate the amount of tax deducted from income, rely on data supplied by employers and pension providers.

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Mr Bennett commented: "If your tax code results in too much tax being deducted, you might receive a smaller pay cheque and could struggle financially until you reclaim the excess tax. A wrong tax code could [also] mean you're underpaying tax, leading to a surprise bill from HMRC later, possibly with interest and penalties."

"Incorrect deductions reduce your disposable income, impacting your ability to manage expenses or save."

A tax code is a mix of letters and numbers indicating an individual's entitlement to tax-free income within a tax year. For the 2023-24 financial year, the most prevalent tax code is "1257L", signifying a Personal Allowance of £12,570.

This allowance is the threshold up to which one can earn income without owing any tax. There are several methods available for individuals to ascertain if they are overpaying or underpaying their income tax.

These steps include scrutinising payslips, confirming details on P45 or P60 forms, or using the Government's online portal. Experts are advising Brits to get directly in touch with HMRC if they have any concerns regarding their tax payment levels.

The tax authority has the capability to investigate and make necessary adjustments if an inconsistency is detected. Mr Bennett added: "Keeping an eye on your tax code and understanding its implications is essential for managing your finances effectively. Mistakes can happen, but by staying proactive and informed, you can catch errors early, avoid unexpected bills, and ensure you're not paying more than you should."