Canada Life research finds UK workers overpaid £5.8bn due to wrong tax codes

UK workers overpaid an estimated £5.8bn to HMRC simply because they were on the wrong tax code, according to research by financial services company Canada Life reported on 23 April 2024¹. The same research found that almost a third of UK adults discovered they were on the wrong tax code after checking, and that three-quarters of those people paid an average of £689 more than they should¹.

The survey of 2,000 adults also found that nearly one in five UK adults has never checked their tax code, and almost four in 10 do not know what their tax code means¹. Those who have checked their code have done so on average once every 16 months¹. In 2024-25, the most common tax code is 1257L, though a person's code may differ depending on where they live, the personal allowance they are entitled to and the rate of tax they pay¹.

A tax code is made up of numbers and letters and appears on a payslip near the National Insurance number, as well as on a coding notice from HMRC, the P60 issued after the end of the tax year, the P45 received when changing jobs and in the HMRC app¹. HMRC assigns the code and it tells an employer or pension provider how much tax to take from salary¹. Codes can end up wrong after starting a new job without a P45 being given to the new employer, earning money from a second job, or a change to benefits received¹.

Where a code is wrong, HMRC can adjust it once it has enough information, and will send a coding notice when it has been updated; the employer or pension provider is also given the new information¹. Refunds are paid back through wages by adjusting the tax paid on a payslip, while refunds for tax from previous financial years are sent by cheque¹. If too little tax has been paid, HMRC will either put the person on an emergency tax code or issue a tax bill¹.

Why it matters for households

The £5.8bn figure is an estimate of overpayment across UK workers on the wrong code, and the £689 average applies to the three-quarters of those who checked and found an error, not to all workers¹. Anyone who overpaid in 2020-21 has until 5 April 2025 to make a claim to HMRC, because claims must be made within four years¹. After that cut-off date the overpaid tax becomes "closed" to claims, with the only exception being where the overpayment is down to an error by the tax authority¹. The research indicates that a substantial share of adults have never checked their code or do not understand it, which is the position from which an overpayment can go unnoticed¹. Checking a code and the allowances in it, and claiming a refund when income tax has been overpaid, are the routes the reported material sets out¹.

What happens next

The 5 April 2025 deadline applies to claims for overpaid tax in the 2020-21 financial year¹. No further dates have been reported.