Find out if you are one of the huge number of people who might have paid the wrong amount of tax.
Recently the BBC reported that HM Revenue & Customs has yet to check the PAYE tax payments of 11.5 million people from the tax year 6 April 2005 to 5 April 2006.
Its figures come from Matt Boyle, an independent PAYE consultant, who also said that this represented one-third (32%) of the entire working population.
Meanwhile, a Revenue spokesperson told the BBC that 'at least 75%' of these people will still have paid the right tax.'
But if the remaining 25% haven't, that's still approaching 3 million people who've paid the wrong amount. Even if it's just 10% that's still more than 1 million people!
What I've noticed is that it's been since the Inland Revenue merged with Customs & Excise to form HM Revenue & Customs in March 2005 that this backlog almost doubled. It stood at 7.2 million in April 2005, but by April 2007 it was 13.8 million.
Still, as it was 11.5 million as of June this year, it shows that HMRC might be getting a grip on things. Even so, it's worth looking into your own payments to see if you're due a refund.
Check you paid the right income tax in 2005/2006
Tax can be complicated, but I'll get you started with some basics. We could get into checking tax codes and all sorts of things like that, but instead I'll try to keep it more simple.
1. Work out how much income tax you paid
To do this:
- Check your old payslips or your P60, which your employer should give you at the end of each tax year. If you were out of work during part of that period, or if you switched jobs a lot, you might check your P45s.
- Add up the total income tax you paid in the 2005/2006 tax year.
2. Estimate how much income tax you should have paid
To do this:
- Use the same paperwork to add up your total gross pay (i.e. before deductions, such as tax and National Insurance) for the year.
- Work out the tax you should have paid. You can do this using your gross pay figure and the following table:
Income tax for 2005 to 2006
Tax rate | 2005-06 thresholds |
|---|---|
10% on your earnings from | £4,896 to £6,985 |
22% on your earnings from | £6,986 to £37,295 |
40% on your earnings from | £37,296 and upwards |
The first portion of your income is tax-free, hence the first level of tax starting at £4,896.
3. Reclaim your tax
If you think that you've paid too much, it could have happened for all sorts of reasons, such as having the wrong tax code, or because HMRC was making up for a shortfall in the previous year.
Your next step is to query the figures and reclaim your PAYE overpayments. A government website, Directgov, tells you how to do this.
Check you are paying the right tax this year
You can do the same for the following year, which ended on 5 April 2007, and you can also check to see if you're on track this year -- to April 2008. Here are the details:
Tax rate | 2006-07 | 2007-08 |
|---|---|---|
10% on your earnings from | £5,036 to £7,185 | £5,226 to £7,455 |
22% on your earnings from | £7,186 to £38,335 | £7,456 to £39,825 |
40% on your earnings from | £38,336 and upwards | £39,826 and upwards |
If you have complicated tax affairs
This exercise is just to give you an estimate to see if it's worth asking HMRC to check your tax. It's also too simple for many people, because tax can be complicated by all sorts of things, such as tax credits or having more than one job.
You might seek help from your employer's Finance or Accounting department, or from the helpful Fools on our Taxes discussion board, where you can post your details anonymously. Finally, you can ask HMRC. Just remember though, they can easily say that you owe them money. After all, the Revenue is always right!