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How to Calculate a Tax Refund

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Last editedFeb 20223 min read

Do you think you’ve overpaid HMRC? You might be due a tax refund, but the specific amount will depend on several factors. Here’s how to use a tax refund calculator to determine whether you’re eligible for a refund as well as what you can expect to receive.

Who is eligible for a tax refund?

Anyone who has paid too much tax will be eligible for a tax refund from HMRC, provided there’s a record of overpayment and you file your claim within the required timeframe. Here are a few common areas where you might have overpaid:

  • Income received through PAYE

  • Income paid through Self-Assessment

  • Pension payments

  • Income from annuities

  • Redundancy payments

  • Foreign income

  • Interest from PPI or savings

No matter the source of the overpayment, you’ll need to be able to calculate it accurately to file your claim with HMRC.

Income tax refund calculator

We’ll get started with the most common area of overpayment: income tax. This category includes income received from your employer and paid through PAYE, as well as income received from pensions, annuities, and self-employment. No matter the source, here’s how to calculate what’s owed.

  • Calculating refund on employment income

For employment income, a tax refund calculator UK will ask you for your tax code and the income received during the tax year in question. The most common reason for overpayment is due to an incorrect tax code.

The first step is to pull together your tax records and log in to your personal HMRC account to run through the details. After you’ve entered your payment information and changed to the appropriate tax code, you should be automatically refunded.

  • Calculating refund on self-employed income

On the other hand, overpayments on self-employed income tend to happen when your income drops during the current tax year. If you made payments on account based on the previous year’s income, this means you will have overpaid. In this case, you won’t need to use a UK tax refund calculator or any other special tools. You’ll simply need to log into your Self-Assessment account online and fill in all requested fields.

How to complete a P800 calculation

Those who receive income from employers or pension providers are part of the PAYE system, with the employer responsible for income reporting requirements. Banks and building societies must also report earnings, giving HMRC a full picture of your streams of income. At the end of the tax year, HMRC will generate an automatic calculation based on reported income. If they don’t think you’ve paid enough (or have overpaid), you’ll receive a P800 tax calculation.

What’s important to realise is that it’s possible for HMRC’s automated system to get this calculation wrong. It’s worth calculating your own tax liability and cross-checking the figures with the P800 form. Simply add up all sources of income from your own sources, saving all payslips and interest statements. This will help you work out if you are owed a refund.

One thing to remember is that HMRC will only issue refunds for payments submitted during the past four years of returns. If, for example, you wished to use a tax refund calculator 2014, it would be too late.

PPI tax refund calculator

Another common area where taxpayers are owed refunds is on interest paid on PPI compensation. While the deadline has passed to file a claim for payment protection insurance compensation, you might be eligible for a refund if you’ve overpaid on interest since then.

Use a PPI tax refund calculator to find out what, if anything, you could be owed. A PPI refund tax calculator will look at your PPI pay-out, the interest you’ve earned, and whether a personal allowance was applied. For interest, tax is deducted at a basic 20% rate. For example, if you earned £100 in interest from a PPI pay-out, you would have paid £20 in tax. The PPI refund tax calculator will compare this payment to your personal savings allowance to see if you’re owed a refund.

The bottom line

From PPI to self-employed income, there are many circumstances in which a taxpayer might have inadvertently overpaid and be owed a refund. These calculations are straightforward in most cases, with automatic repayments sent out once you’ve completed the P800. However, when there is any doubt the best course of action is always to get in touch with HMRC directly.

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