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How to Claim Back Overpaid Tax

Even with the most meticulous accounting procedures in place, it’s possible to pay more tax to HMRC than you owe. There are multiple factors that can lead to overpaid tax, from tax code errors to unexpected changes in profits. Whatever the reason, here’s how to claim back overpaid tax.

Overpaid tax through PAYE

If you pay taxes through PAYE, HMRC will automatically reconcile any discrepancies at the end of the tax year. This works out the difference between taxes owed and taxes paid. If there are differences between these two figures, HMRC sends you a P800 tax calculation or PA302 simple assessment. Be sure to check these documents carefully for errors before claiming your overpaid tax refund.

Overpaid income tax through self-assessment

If you’re self-employed or a small business owner, you probably file a self-assessment return online. Overpayments are common for those filing self-assessment returns, occurring when your income is lower during the current tax year than the previous. This would lead to payments on account exceeding your actual liability.

It’s simple to claim overpaid tax through self-assessment, as there’s a section of the online return asking for bank account details. If preferred, you can choose to be paid overpaid income tax via cheque.

Overpayments can also be used to offset outstanding liabilities, such as VAT payments or overpaid credits.

Interest on overpaid corporation taxes

Larger companies can claim back overpaid tax with interest, depending on circumstances. As with a self-assessment return for self-employed individuals, business organisations can indicate overpayments on their company tax returns.

For the 2020/2021 tax year, the HMRC interest rate is 0.5% on overpaid corporation tax. This is applied when your business has either paid tax early or paid more than is owed.

  • Early payments: HMRC pays interest covering the period starting from the corporation tax payment up until the payment deadline.

  • Overpayments: Interest is calculated starting either from the date when the tax was due, or when the tax was actually paid.

  • Instalment payments: If your company pays tax in quarterly instalments, interest is calculated either from the first instalment date or the date that the balance goes above what is owed.

It’s important to note that these interest payments are taxable, and should be included as income in your next company tax return.

As with PAYE and self-assessments, you have several options for claiming overpaid corporate tax.

  1. Provide your business account number and sort code on the tax return for direct payment into your company bank account.

  2. Use your overpayments to help offset your next corporation tax bill or late filing penalties.

  3. Use the overpayments to offset other tax owed by the company, such as PAYE or VAT.

Reasons for delay in an overpaid tax refund

The fastest way to claim an overpaid tax refund is generally by completing your tax return online. In most cases, repayments are submitted directly into your bank account in a matter of days. However, at times HMRC might need to verify figures before sending out your repayment. If it’s been several weeks and you haven’t heard any news about your refund, it’s best to phone HMRC for details.

Extra security checks might be performed due to the size of a refund, or because you work in a particular industry. HMRC might send out a letter asking for more details in these cases, which could warrant consultation with a tax adviser.

Time limits on an overpaid tax refund

If you’ve overpaid taxes due to mistakes made when filing your tax return, you need to amend your return before you can claim back the money. The usual deadline for correcting tax returns is 12 months from the tax year’s self-filing deadline (January 31). If you’ve realised the error after this date, you could still potentially claim your refund through overpayment relief.

To claim overpayment relief, you must write to HMRC directly providing the following information:

  • Personal or business details (Name, address, UTR or NIN)

  • Tax year

  • Statement asking for overpayment relief

  • Explanation of how the overpayment occurred

  • Evidence of tax paid

  • Bank details or request for cheque

  • Signature and date

As with any tax matter, be sure to keep copies of correspondence with HMRC for your own financial records.

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