This blog post aims to guide in answering the question of why someone’s PAYE amount increases. While we will essentially discuss the reasons that can lead to a change in this amount, we will also assess the factors that can cause an increase in PAYE due to an error; as well as explore ways to correct the error.
Why Has My PAYE Increased?
If you find out that your PAYE has increased, you should know that several reasons can be responsible for this. Some of these include the following:
- incorrect Tax Credits
- unclaimed tax relief
- change of jobs
- addition of a second job
The amount of income tax deducted through the PAYE system for salaried employees is based on some key factors:
- their income
- their tax code
- their Personal Allowance
Your income determines the taxable amount of earnings once Personal Allowance has been deducted from it. If there has been an increase in your income (this may or may not be due to a change in jobs), your PAYE amount can increase.
The tax code that is assigned to you by the HMRC indicates the following:
- the nature of the tax rate; whether it is a basic rate, cumulative or non-cumulative tax code
- whether or not an emergency tax is being applied due to a change in your circumstances during the tax year
- the amount of Personal Allowance that remains exempted from being taxed
If your tax code changes during a tax term, it can cause your PAYE to increase.
Sometimes, this can be due to a calculation error, an incorrect tax code being assigned to a PAYE employer or someone overpaying their taxes while shifting from an unemployed or self-employed status to an employed one or moving from being a part-time worker to a full-time one.
Personal Allowance is a uniform amount that applies to all taxpayers throughout the UK. For the tax year 2022/2023, this amount has been set at £12,570 (the same as last year). This means that the first £12,570 of your annual income is tax-free; while the remaining amount of your income which is over £12,570 will be accounted for as a tax deduction.
If you think that your PAYE has increased by mistake, there are two things that you should do:
- check your tax code
- check if you are paying the correct amount of tax
In the case of overpaid taxes due to an increase in your PAYE, you can claim a refund from the HMRC.
How Can I Check My Tax Code?
You can check your tax code by looking at the following documents:
- your payslip
- P60 form
- tax notification
All these documents should mention the same tax code for your income tax deduction to be error-free. If you work two jobs, you will have to check your payslips. In this case, you can have a different tax code assigned to each job; depending on your income.
Your tax code is made up of letters and numbers. The letters indicate your circumstances and the number indicates your tax-free Personal Allowance. These are explained below:
- L is the most commonly used tax code for salaried individuals and entitles them to the basic rate of Allowance applicable in a given tax term
- M is a tax code used for an employee whose spouse or civil partner chooses to transfer some of their Personal Allowance to them
- N is used for an employee who transfers some of their unused Personal Allowance to their spouse or civil partner
- T is used when some items considered for an income tax deduction are under review with the HMRC
- K is used when the tax-free benefits that an employee gets are higher than their Personal allowance
- 0T is used when an employee’s P45 form is missing, there are not sufficient details to work out their tax code, or when all of their Personal Allowance has been exhausted
- BR is used mostly in the case of a second job or pension and means that an employee’s entire income is being taxed at the basic tax rate of 20%
- D0 is used to apply to second jobs, but this tax code indicates that an employee falls into the higher income tax bracket of 40%
- NT is used to indicate that there is no tax deduction from an employee’s income and can apply either to full-time university students who only work during the holidays or to those individuals who work outside the UK
The most common tax code for the current tax year is 1257L which indicates that your tax-free Personal Allowance is £12,570 and annual earnings that are more than this amount will be taxed.
How Can I Check If I Have Paid The Right Amount Of Tax?
You can check if you have paid the right amount of tax online by accessing your Personal Tax account using your Government Gateway ID and password. You can use the service to also check the following tax-related details:
- your Personal Allowance
- changes to your tax code
- inform the HMRC about the change in your circumstances that affect your tax code
- update details regarding your employer or pension provider
- view an estimate of the amount of tax you are required to pay over the entire tax year
- review and update the estimates of your income through jobs and pensions
You use your Personal Tax account to get an online estimate of how much income tax is due on your annual earnings.
If you need personal assistance on the matter, you can contact the HMRC at 0300 200 3300 from Monday to Friday, between 8 am to 6 pm. Written queries can be sent to the following address:
Pay As You Earn and Self Assessment
HM Revenue and Customs
How Can I Claim A Refund On Overpaid Tax?
If you have overpaid your tax, you can claim a tax refund by using your P60 form and sharing the following details with HMRC:
- your earnings in total
- the amount of income tax that you have paid
- the amount of income tax that you have paid in excess
Additionally, you must also provide details of your National Insurance number and employer reference number.
In the case that a taxpayer has overpaid their tax due to any of the following reasons,
- being put on an emergency tax code due to starting a new job,
- having two jobs simultaneously, or
- switching from a full-time to a part-time job
they can claim a tax refund and reclaim the amount from HMRC after the end of the tax year. Claims for overpaid taxes can be made for up to four years. This means that an overpaid tax in 2022 can be claimed until 2026.
Tax refunds are usually paid by HMRC within 5 working days directly to the claimant’s UK account. If you do not claim it within three weeks, HMRC will send you a cheque through the post.
The discussion in this blog post brings us to the conclusion that while there is a range of circumstances that can cause a salaried individual’s PAYE to increase if someone believes that none of those circumstances applies to them and the change has occurred in error, they can get an online estimate of their taxes and reclaim overpaid tax (if any) from the HMRC.