The shocking truth is that millions of hardworking people in the UK are quietly handing over way too much of their hard-earned money to the taxman every single month—without even realizing it. Recent figures reveal that more than 5.6 million taxpayers overpaid a staggering £3.5 billion in income tax during the 2023/24 tax year alone. That’s an average of around £625 per person unnecessarily deducted from paychecks or pensions. And the biggest culprit? Incorrect tax codes slipping through the cracks in the PAYE system.
It’s frustrating, isn’t it? You grind away at your job, watch your salary get chipped away by deductions, and assume everything’s being handled correctly. But in reality, the system sometimes operates on outdated or inaccurate assumptions about your income, benefits, or life changes. I’ve seen friends discover they were on the wrong code for years, only to reclaim hundreds (or even thousands) once they finally checked. The good news is that spotting and fixing these errors is entirely within your control—and it could put real money back in your pocket.
Why So Many People Are Overpaying Tax Right Now
The sheer scale of the problem is eye-opening. According to detailed analysis from accounting professionals, the vast majority of these overpayments stem from mistakes in tax codes issued under the Pay As You Earn (PAYE) framework. Employers and pension providers rely on these codes to calculate how much tax to withhold. When the code is wrong, you either pay too much or—less commonly—too little, which can lead to an unexpected bill later.
What makes this particularly sneaky is how quietly it happens. HMRC doesn’t always proactively notify people about overpayments anymore, and paper notices aren’t sent out as routinely as they once were. That means the responsibility falls squarely on individuals to stay vigilant. In my view, this shift places an unfair burden on everyday taxpayers who already have enough on their plates.
Common scenarios that lead to errors include:
- Outdated information about benefits-in-kind—like a company car or private medical insurance you no longer receive.
- Assumptions about extra income sources, such as rental properties or side gigs, that have since ended.
- Multiple jobs where HMRC hasn’t properly accounted for your total earnings across them.
- Delayed or incorrect payroll data from employers reaching HMRC late.
- Life changes (new job, marriage, divorce, pension start) that weren’t promptly updated.
These aren’t rare edge cases. They’re everyday occurrences for millions. And because tax codes often default to estimates when fresh data is missing, over-deduction becomes the default outcome for many.
Understanding Your Tax Code – The Basics Explained
At its core, a tax code is a simple but powerful instruction. It tells your employer (or pension provider) exactly how much of your income is tax-free and how to apply any adjustments. The most common one you’ll see is
1257L, which corresponds to the standard personal allowance of £12,570 (the amount you can earn before income tax kicks in for most people).
The number part represents your tax-free amount in hundreds—so 1257 means £12,570. The letter suffix usually indicates special circumstances:
- L: Standard code for most people with one job and no untaxed income or benefits.
- M or N: Marriage Allowance transfers (M for the lower earner, N for the higher).
- BR: Basic rate tax on all income (often for second jobs).
- D0 or D1: Higher or additional rate on all income.
- NT: No tax deducted (useful in specific situations like certain benefits).
- K codes: These are negative allowances—meaning tax is deducted from other income to cover underpayments elsewhere. They can sting if applied incorrectly.
If your code doesn’t match your situation, that’s where problems start. Perhaps you spot a K code when you shouldn’t have one, or your personal allowance seems reduced without explanation.
Millions are paying the wrong amount simply because the authorities are estimating earnings rather than using accurate, up-to-date details.
– Accounting expert insight
It’s a reminder that the system, while efficient for most, isn’t foolproof.
Step-by-Step: How to Check If Your Tax Code Is Correct
The process is straightforward once you know where to look. Don’t wait for a letter or surprise bill—take charge now.
First, grab your most recent payslip. Your tax code should be clearly printed there, usually near the deductions section. If you have multiple jobs or pensions, you might have different codes for each—check them all.
Next, cross-reference it with official records. The easiest modern way is through your personal tax account on the government website or the HMRC app. Sign in (or register if you haven’t already—it’s quick and secure). Once inside:
- Navigate to the Income Tax or PAYE section.
- Look for your current tax code and the breakdown of how it was calculated.
- Review any estimated income, benefits, or adjustments listed.
- Compare this directly to your payslip and real-life circumstances.
If everything lines up—great. But if something looks off (say, they’re still factoring in a benefit you gave back years ago), flag it immediately.
Other places to find your code include year-end P60 forms from employers or pension statements. And if you’re old-school, HMRC sometimes still mails notices, though that’s rarer now.
One tip I’ve picked up over the years: check at least once a year, ideally around the start of the tax year in April, or whenever your job or income situation changes. It only takes a few minutes but can save hundreds.
What Happens If You Spot an Error?
Discovering a mistake isn’t the end of the world—it’s actually the first step toward getting money back. Contact HMRC through your online account, the app, or by phone. Provide evidence (old P45s, benefit termination letters, etc.) to support your case.
In many instances, they’ll adjust your code going forward and process a refund for overpaid amounts. Repayments often appear in your next paycheck or via bank transfer. However, it can sometimes take weeks or months, especially if records need verifying. Patience is key here.
If the error led to underpayment instead, HMRC might spread any owed tax over future paychecks to avoid a big hit. Either way, acting quickly prevents bigger issues down the line.
Common Tax Code Pitfalls and How to Avoid Them
Beyond the basics, certain situations trip people up more often than others. Multiple employments are a classic—HMRC might apply your full personal allowance to one job and tax the rest at basic rate, but if they misjudge, you overpay.
Emergency tax codes (often starting with 1257L but applied wrongly) can hit when you start a new job without a P45. These assume you’re earning at a high rate from day one, leading to excessive deductions until corrected.
Pensioners aren’t immune either. State pension combined with private pensions can confuse codes if not updated properly. And don’t forget Scottish taxpayers—codes starting with S have different thresholds.
The best defense? Stay proactive. Update HMRC whenever your circumstances change—new job, stopped benefit, marriage, etc. A quick message via your online account prevents most problems before they start.
The Bigger Picture: Why Checking Matters More Than Ever
With living costs still pressuring household budgets, every pound counts. Overpaying tax is essentially an interest-free loan to the government—money you could be using for bills, savings, or treats. And since HMRC invests heavily in digital tools to help people get it right first time, there’s really no excuse not to use them.
In my experience, the people who check regularly are the ones who catch errors early and reclaim what’s theirs. It’s empowering, actually—taking control of something that feels out of your hands.
So next time you open a payslip, pause for a second. Glance at that code. Log into your account if anything seems amiss. It could be the quickest way to give yourself a pay rise this year.
The overpayment figures aren’t going down anytime soon unless more of us stay on top of it. Why not be one of the smart ones who spots the issue before it costs you?
