Are You Paying Too Much Tax To HMRC?​

Let's be honest, nobody likes paying tax. How many times have you looked at your paycheque and thought; is this right? Did I really pay that much? It's important to keep a close eye on your money to make sure you never pay a penny more than you should.

Watch the video here or click on the quick links below to jump to the sections you want to read. 

• How likely is it I've overpaid tax?

  As good as HMRC’s automatic systems are they can still get it wrong. Ever been sent a tax rebate that you weren't expecting and it felt like Christmas? That’s because HMRC has seen that you’ve paid too much in tax and sends it back your way. It’s also proof that they can get it wrong. It pays to stay on track with how much tax you should be paying and how much you’re shelling out.

• Getting organised

  Before we dive into how you might be overpaying your tax, it’s best to get an understanding of how you can keep on top of it all. Although it may seem like overkill, the government recommends keeping any records you might have received, prepared yourself or claimed just to be on the safe side.

  Folders are your friends. You should aim to keep all your documents in an old-school physical folder or a digital one on your desktop. If you opt for the digital option, make sure you scan both sides of any document and back these up regularly. Many of us struggle to remember what we had to eat for lunch nevermind what we paid in tax last year. Storing documents in date order makes it easier to reference any questions you may have for HMRC.

• How long do I have to keep records for?

  If you’re an employee and do not own a business, the government states you must keep all records for 22 months from the end of the tax year that they relate to. For instance if you have a tax return dating back to July 2020, you’ll have to keep hold of it until May 2023 since the tax year ends in April. However, if you've set up your Personal Tax Account, that information will already be there. As will all other tax information relating to you. This time may even be extended if you fail to submit your return on time. For the self-employed or those in a partnership, this is extended to 5 years from 31 January following the end of the tax year that they relate to.

• Most likely mistakes

  The most common overpayments are caused by new employment, inaccurate self-assessment forms or work expenses. When you start a new job you may be placed on an emergency tax code if your income details aren’t received in time by HMRC. An easy way to spot this is if your first pay cheque is lower than expected and your tax code is 1257 W1, 1257 M1, or 1257 X. Most of the time this will be automatically sent back by HMRC but you can hurry up the process if you contact them directly.

  When it comes to Self-assessment forms there are a number of ways you can overpay on tax. Mistakes can result in overpayment but can be resolved if you send a corrected version to HMRC, they’ll then be able to make a repayment or take it away from your outstanding amount. You may have also overpredicted the payment on your account so it’s worth chasing this up if your takings don’t match up.

• What expenses can I claim?

  Since HMRC can only go off the information that you give them, they’ll never be able to see the money that you may be dishing out on the things you need to work. Things like

  • Travel to temporary workplaces
  • Accommodation
  • Food
  • Uniform upkeep
  • Fixing or replacing the tools or equipment to do your job
  • Professional subscriptions, union or license fees
  • Training course expenses that are essential for your job

  Expenses are seen as a justified cost in the eyes of the government and you shouldn’t be penalised for paying into your business. As both the self-employed and those trading as a limited company can claim expenses, we’ll help you figure out what classifies as an allowable expense.

• Self-employed expenses

  In the day-to-day running of your business you will most probably have a number of running costs. By taking these from your taxable profit, you can reduce the overall amount of tax you pay. It’s important to note that any private purchases for personal use do not qualify. So unless that Smart TV is going to stay in your office you might want to leave it out.

  As well as the usual suspects of stationary, travel and staff costs, you might be surprised with some of the expenses you can claim on. With a growing number of us working from home you can actually claim on some of your housing costs. Things like electricity, broadband and rent all qualify. To do this, you’ll need to divide your costs by the amount of time you spend working from home. There is a level of trust within this but as long as your reasons are justified, there’s no reason why you can’t save some money.

• Limited company expenses

  If you already own a limited company, you’re probably used to filling out paperwork as it’s your responsibility to pay your own tax. For those looking to dip their toes into going limited, you’ll need to know about the added responsibility that comes with this. As well as paying tax on all profits, your limited company must keep all records regarding the company’s information, accounting and finances for six years from the end of the tax period.

  In a similar way to self-employed expenses, you can claim allowable expenses to reduce the amount of tax you pay. Limited companies fall under the current corporation tax of 19% so this will be applied to your profit once expenses are taken from the total. Working from home still counts as an allowable expense even if you split your time between an office.

• Who can help me?

  All taxpayers can legally appoint someone to contact HMRC on their behalf. If you just need some help from a family member then they can apply to be registered as a trusted helper. For someone to actually correspond on your behalf then you’ll need to write to HMRC and make them an intermediary. For those who want to be as hands-free as possible, you’ll need to appoint an actual agent to process your tax and HMRC may ask you to complete a specialised form.

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