18 April 2021

David Malik-Davies, director at The Tax Refund Company, discusses the solution to a persistent problem that affects one in three employees

Research has found that 36% of employees had paid too much tax as a result of being given the wrong tax code. The research of 54,000 employees in the UK, conducted by The Tax Refund Company, found that 36% had been given at least one wrong tax code in the previous four years resulting in them paying too much tax, with employees losing on average £204 each.

A separate study of 2,000 employees found that:

  • 71% believe someone other than themselves is responsible for making sure they pay the correct tax, typically HMRC or their employer

  • 47% never check their payslip

  • 32% didn’t know that having more than one job affects their tax.

The complexities of the UK tax system make it very hard for ordinary taxpayers to check their own tax code. Most employees have no idea that they even need to, assuming HMRC automatically issues the correct code and that their employer would know if it was wrong.

If employees are being effectively underpaid, this will in some cases be adding to, or even be the cause of, their financial stress. The importance of addressing employees financial wellbeing should not be underestimated. This area has been gaining significant traction over recent years as more and more employers recognise the real cost to their bottom line of failing to do so.


...not only are the employees unaware they could have a problem with their tax, but their employers are also unaware the problem exists.


Financial wellbeing schemes are great, but there seems little point in focusing on how to save money, minimise borrowing or deal with debts if employees are actually being underpaid because they have the wrong tax code. Helping them check they are using the correct tax code and being paid the right amount would seem like the obvious first step in any financial wellbeing programme.

The issue is compounded by the fact that not only are the employees unaware they could have a problem with their tax, but their employers are also unaware the problem exists.

Our work with employers is focused on helping them educate their employees to understand that their tax code is their responsibility and their employer must use the code HMRC provides. At the same time, we recognise the majority of employees have neither the knowledge nor inclination to check their codes and so we’re on hand to provide help if required.

Although theoretically it’s possible to check your own tax code, this presupposes you have the necessary knowledge and understanding of tax, or the inclination to gain that knowledge, which few employees do. Where we act on behalf of employees who have tried to check their own codes, and in some cases got money back from HMRC, we frequently find they failed to check properly and help them get more money back, or we find errors where the employees’ own checks with HMRC have found nothing.

Employees are often frightened of checking their tax in case they end up with a tax bill, so we’ve taken steps to allay those fears through our guarantee to pay unexpected tax bills that occur as a result our work.

In the past payroll managers frequently assumed that telling employees to check their tax codes would create an increased workload, but were surprised to find this wasn’t the case. Over the past 28 years we’ve helped more than two million employees check their tax, developing a web-based system that enables us to run a comprehensive and in-depth review of an employee’s tax position without the need for input from their employer’s payroll department. Where we find errors in their tax codes that have caused them to pay too much tax, we can restore the employee to the correct financial position.

In the current economic climate, many employers will struggle to give employees a pay rise, but by simply advising their employees to check their tax codes, over a third of employees could end up with more money in their pocket, and at no cost to the employer – a true win-win.” 

For more information on the service offered by The Tax Refund Company, visit www.thetaxrefundcompany.co.uk.



Featured in the May 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.