UK taxpayers are entitled to several tax refunds depending on factors like employment situation and personal circumstances. While you might receive a tax refund automatically, there could be tax refunds for which you qualify but are not aware.
In this blog, we will understand how to claim a tax refund in the UK. We will start with understanding what a tax refund is and looking at the eligible sources for tax refunds.
We will also look at your eligibility for getting a tax refund and the process of claiming it. We will also look at the deadlines for claiming tax refunds and the time limit within which you should expect to get your tax refunds.
Meaning of Tax Refunds
Tax refunds come into play when you have paid more taxes than you owe. It could mean that:
- You have paid a greater tax than your liability.
- You qualify for certain tax benefits that can be reimbursed.
In such circumstances, you can claim a tax refund.
It is important that you stay well aware of your tax situation and do not pay more than the required tax from your hard-earned money.
But in case, such a situation arises, make sure to avail yourself of a tax refund.
Eligible Income Sources for Tax Refunds
Tax refunds can be claimed on the following taxable income sources for which you have paid taxes:
- Compensation from your present or past employment.
- Pension disbursements.
- Income received from life or pension annuities.
- Severance payments.
- Self-assessment tax return filings.
- Interest accrued from savings or PPI.
- Foreign income.
- UK income if you reside overseas.
- Work-related expenses, such as costs associated with working from home or the acquisition of attire and tools pertinent to your profession
Calculation of Tax Liability: Ensuring Accurate Tax Payments
The most common reason for tax refunds is that you have paid a higher amount of tax than you were required to. Hence, understanding how your tax obligation is calculated is important to avoid overpaying taxes.
If your earnings exceed the personal tax-free allowance of £12,570, you become liable to pay income tax.
Importantly, it is not just your salary that factors into this calculation. Any form of income, including pension payments, life annuities, and interest on investments, falls under the category of 'earned income’.
The accuracy of your tax code is pivotal in determining the correct amount of tax you should be paying. HMRC (His Majesty’s Revenue & Customs) relies on your employer to provide you with an accurate tax code, and it's your responsibility to fill in a precise declaration form.
Despite the system's efficiency, miscalculations can occur.
To ensure you are paying the correct amount of tax, consider conducting a tax calculation exercise:
- List all components of your income subject to taxation.
- Go through each component, determining the applicable tax rates and bands for your earnings.
- Do not forget to deduct your personal allowance and cross-verify your tax code against your calculations.
Also, the UK tax system offers various work expenses tax reliefs, and allowances. These benefits are available to all UK taxpayers.
Employees can benefit from straightforward 'flat-rate' expense claims. Self-employed individuals can claim expenses like mileage and other business-related costs.
Taking advantage of these tax reliefs ensures you pay the right amount of tax over the years.
Is Overpaid Tax Refunded by the HMRC?
Yes. HMRC does refund your overpaid taxes. This refund could be:
- Automatic refund
- Through a refund application
Claiming a Refund: Is Overpaid Tax Automatically Refunded?
At each year’s end, HMRC balances its books. This involves reconciling every PAYE (Pay As You Earn) taxpayer’s financial situation. This involves examining the information provided by your employer including your earnings, in-kind benefits, and the amount of income tax paid.
A P800 tax notice will inform you of this calculation. In case you have paid too much income tax, you will automatically get a tax refund.
But what about the refund of work expenses and business allowances?
No, they are not refunded automatically. If you do not claim them, you won’t get them back.
Qualifying for Tax Refunds: Are You eligible?
You are eligible for a tax refund in the following two scenarios:
- If you have overpaid your taxes.
- If you are eligible for claiming tax refunds like uniform tax refunds.
For overpaid taxes, you can claim arrears of up to 4 years.
There could be several other refunds that you could be eligible for depending on your employment situation. These have to be pursued by yourself and can include refunds for travel costs, accommodation expenses, professional membership refunds, etc.
To know the full list of refunds you could be eligible for check the government’s website.
How to Claim Your Tax Refunds?
Now, let us understand how to claim a tax refund.
If your P800 has informed you of your tax refunds, it will also point out how to avail it. Let us understand the process to claim a tax refund as per your P800 instructions.
Claiming tax refunds online
If your P800 mentions to claim your tax refunds online then you will need your Government Gateway user identity and also your password for the same.
In case you do not have a Government Gateway account, you can easily create it. For this you will need your National Insurance Number and any one of the documents given below:
- UK passport
- Your P60 from your employer for the previous tax year
- A payroll statement from the preceding three months.
- A driving license issued by the DVLA (or DVA in Northern Ireland).
- Relevant information is available on your credit file, which may include details related to loans, credit cards, or mortgages if you have one.
Tax refunds UK can also be claimed through the HMRC app.
Getting tax refunds through cheque
If your P800 mentions that you will receive your tax refunds through a cheque, then you need not make any claim.
How to Reclaim Overpaid Tax When It is Not Automatically Refunded?
If your overpaid taxes are not automatically refunded, you will have to utilise the self-assessment system.
The process will vary depending on your employment status, whether you are self-employed, a sole trader, in a partnership, or not self-employed.
You will require a 10-digit unique taxpayer reference (UTR) number, issued by HMRC upon online registration. This UTR is essential to create your self-assessment online account through the Government Gateway.
For added security, HMRC will send you an activation code within seven working days. This code will be needed for signing into your account for the first time.
When Will You Get Your Tax Refunds?
Having understood how to claim a tax refund UK, let us know when you can expect to receive it.
At every tax year’s end, you will get a P800 informing you of the refunds you are eligible for.
If the P800 mentions to claim your tax refunds online, then you will be sent the refund amount within 5 working days of your claim. Once your bank processes the transaction, it will be credited to your UK account.
In case, you do not make a claim of your tax refunds within 21 days, HMRC will send a cheque to you. You will receive this cheque within 6 weeks of the date mentioned on your P800 or the tax calculation letter.
In case your P800 points out that you will receive your payment through a cheque, then you will get this cheque within 14 days of the date mentioned on your P800 or your tax calculation letter.
If your tax refund is for more than one year, you will receive a single cheque for the entire refund amount.
In case, the tax refund query is regarding your self-assessment, the process might take more time.
Basically, the nature of your query will decide the time taken to expect a response to it. The government also has a tracker in place to help give you an idea of the length of the queue.
What Will be the Amount of My Tax Refunds?
Several factors determine your tax refund amount:
- Your income bracket
- Whether you work from home
- Have you paid any expenses for services and equipment due to your employment, etc.?
Then there are some allowances that you can claim depending on your income tax rates and the amount you have spent, like clothing repairs, etc.
Say, you have spent £200 per year on work uniform cleaning, you are entitled to a 20 per cent rebate on this amount or £40.
Time Limit for Reclaiming Overpaid Taxes
The UK tax year is from the 6th of April of a year to the 5th of April of the following year. You can make a tax refund claim for up to four tax years.
Let’s say the tax year is April 6th, 2023 to April 5th 2023. In this instance, you claim tax refund arrears till the year 2019-20 tax year and not for any year before that.
How Unicorn Accountants can help?
UK taxpayers can avail of several tax refunds. While some of these will be provided automatically by the HMRC, for others you have to apply for them. Hence, it is important to be aware of the tax refunds you are eligible for to claim your tax refunds accurately so that you do not leave your hard-earned money on the table.
If you require any assistance or advice for your tax refunds, do not hesitate to get in touch with our London accountant experts. With several years of experience helping small and medium businesses, we can help you with your tax refunds- no matter the issue.
To speak to our experts call us at 020 8064 0454 or e-mail us at firstname.lastname@example.org and we will get in touch with you at the earliest.