How to claim a tax refund if you lose your job

If you’ve recently been made redundant, or lost your job mid-way through the tax year, you could be eligible for a refund from the taxman.

Income tax is calculated over the full year and so if you lose your job before the end of the tax year, then you won’t have earned as much as HMRC expected you to originally – and hence you will likely have overpaid tax.

By way of a simplistic example – someone earning £25,000 a year with no other income would be expected to have a tax free allowance of £12,570 in this tax year and then pay the 20% basic rate of income tax on the remaining £12,430 of their income, a sum of £2,486.

This tax bill of £2,486 is usually deducted in equal monthly instalments of £207 from your pay packet as HMRC expects you to earn the same amount each month throughout the year (think of it as paying your tax bill in instalments). So far, so straightforward, as long as your salary doesn’t change.

In this same example, if the person is made redundant six months into the tax year (the end of September) and doesn’t find another job – they will have earned £12,500 throughout the tax year, just under the tax free allowance. This means they should not have to pay any income tax on their annual earnings.

It is likely however that whilst they were employed they would still have paid £207 a month in tax from their paycheck for the six months they were working, a sum of £1,242 that they should now be eligible for a tax refund on – assuming they don’t find another job within the same tax year.

In reality, everyone’s tax circumstances are different and there are a wide range of factors that will affect your tax bill each year, so you will need to check the situation that applies to you.

Here, we explain who might qualify for a tax refund, and how to go about claiming one.

If you’re not working and are made redundant before the end of the tax year (so any time between April 6 and April 5) and you were previously paying tax through the Pay As You Earn (PAYE) system, you might qualify for a tax refund.

The amount you’re likely to receive will depend on various factors, such as how much tax you paid on your earnings while you were in work, and whether you paid tax on any other income. It will also depend on how much you’ve earned since the tax year started.

There are other reasons you might be able to claim a tax refund. For example, if you’ve recently started a new job, you might have been put on an emergency tax code for the first few months. Similarly, if you’ve recently gone from working full-time to part-time, again you may have paid too much tax in the year to date and could be eligible for a rebate.