Around 460,000 people chased HMRC for refunds on overpaid income tax in the year 2018/19, according to an FOI request by insurance company, Royal London
The value of all types of repayments to individuals in 2018/19 was £5.1bn, up from £5.0bn in 2017/18, made up of refunds to individuals and for personal pension contributions. Individual taxpayers were refunded £2.78bn, down from the previous year's £3.1bn, while pension refunds jumped to £2.24bn, up 10% from £1.9bn.
The main reasons for overcharging income tax were that someone had changed jobs in the year or was subject to changes to taxable benefits, which might result in an overpayment of tax.
Becky O’Connor, personal finance specialist at Royal London, said: ‘This goes to show it’s a good idea not to assume the taxman is always right about what he says you owe.
‘Always check your tax statement for the year and keep a note of any unusual changes to your income that might mean you have overpaid.’
Another reason to apply for a refund could be tax paid on interest received as part of payment protection insurance (PPI) compensation payouts. PPI payments include annual interest of 8% to compensate claimants for the years when they were out of pocket as a result of being mis-sold a PPI policy.
Non-taxpayers and those who have received interest within their personal tax allowance for the year could be eligible to reclaim tax paid on PPI interest, if they have received a payout.
For instance, a total payout of £3,000 for a PPI policy that was taken out five years ago would have had approximately £180 of tax paid directly to HMRC, which could be reclaimed according to Moneysavingexpert calculations.
O’Connor said: ‘If you have received a payout for PPI compensation, it is worth checking the statement for details of any tax paid on the interest element of your refund.
‘If it was and tax was not due because the interest income was within your personal allowance or you are a non-taxpayer, you may be entitled to request a refund.’
Anyone who thinks they may have overpaid income tax on savings and investments should fill in a R40 form, available on the HMRC website. Taxpayers can claim a refund for up to four previous tax years in most circumstances.
Some circumstances in which taxpayers might apply for a refund of tax overpaid:
- pay from your current or previous job;
- pension payments;
- income from a life or pension annuity;
- a redundancy payment;
- a self-assessment tax return;
- interest from savings or PPI; and
- UK income if you live abroad.
This is the first time Royal London has requested this information so comparable figures for the previous year are not available.