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.
- Who can claim a tax refund?
- How long do you have to be unemployed before you can claim tax back?
- Find out how much tax you can claim
- Getting your tax refund if you aren’t claiming benefits and haven’t started a new job
- When you shouldn’t need to apply to HMRC for a tax refund
- If you’re claiming Universal Credit
- Are there any time limits to claim a tax refund?
- Check your tax code
- Beware scams
Who can claim a tax refund?
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.
How long do you have to be unemployed before you can claim tax back?
You must have been unemployed for at least four weeks before you can claim a tax refund.
Find out how much tax you can claim
Crunching the numbers to work out how much tax you could get back isn’t easy, but the good news is that HM Revenue & Customs (HMRC) can help do the sums on your behalf.
It’s worth getting your paperwork together before you use their online tools though – you’ll need your most recent payslip which should detail your earnings and any tax paid since the start of the tax year, along with bank statements showing details of any other income you might have received from other sources.
If you are interested, you are also able to check how much income tax you paid last year here.
Getting your tax refund if you aren’t claiming benefits and haven’t started a new job
If you’ve had your final pay packet from your employer and aren’t receiving any taxable benefits, or a pension from your employer, and you haven’t started a new job, you can make a claim to HMRC to receive a tax refund.
You’ll need to complete a form P50 if this describes your situation. You can download it and send it by post, or you can complete it online here. Once you’ve made a claim for a tax refund, it will take HMRC up to 14 days to process it.
If your claim is successful, you’ll either receive a refund directly into your bank account, or you’ll be sent a cheque. If you aren’t entitled to a refund, HMRC will write to you and explain why your claim has been refused.
Learn more about claiming a tax refund here.
If you think you’ve paid too much tax on any of the following:
- pay from your current or previous job
- pension payments
- income from a life or pension annuity
- a redundancy payment
- a Self Assessment tax return
- interest from savings or PPI
- foreign income
- UK income if you live abroad
- fuel costs or work clothing for your job
you can claim a tax refund here.
When you shouldn’t need to apply to HMRC for a tax refund
There are certain situations when you shouldn’t need to apply to HMRC for a tax refund.
If you’ve found another job within four weeks of losing your old one,your new employer should pay you any tax refund you’re owed in your pay. You’ll need to hand over parts 2 and 3 of your P45 to your new employer so they can claim your tax refund on your behalf. Your previous employer will have given you your P45 when you left your old job.
Similarly, if you’re receiving any of the following taxable benefits, you’ll need to give your Jobs and Benefits Office parts 2 and 3 of your P45 so they can work out your tax refund.
- Jobseeker’s Allowance (unless you’re only claiming National Insurance credits)
- Taxable Incapacity Benefit
- Employment and Support Allowance
- Carer’s Allowance
This will be paid either when you stop claiming taxable benefits or at the end of the tax year, whichever happens first. You can find details for your local Jobcentre Plus here.
If you’re claiming Universal Credit
Are there any time limits to claim a tax refund after losing my job?
Yes, you must claim your tax refund within four years from the end of the tax year in which you overpaid. If you don’t make your claim within this period, you won’t be able to get a tax rebate, even if you’re owed a considerable sum.
- Tax year 2019/20 (ended 5 April 2020): claim by 5 April 2024
- Tax year 2020/21 (ended 5 April 2021): claim by 5 April 2025
- Tax year 2021/22 (ended 5 April 2022): claim by 5 April 2026
- Tax year 2022/23 (ended 5 April 2023): claim by 5 April 2027
Check your tax code
Even if you haven’t lost your job, it’s still a good idea to check your tax code, especially if you’ve recently started working for a new employer. Your tax code is used to deduct tax under the Pay As You Earn (PAYE) system and it is shown on your payslips.
For example, each of us has a personal allowance of £12,570 in the 2023/24 tax year, which is the amount we can earn without having to pay tax. This is divided by 10 to determine your tax code, so most people have a tax code of 1257. This is followed by a letter, which is usually ‘L’ and means that you are eligible for the £12,570 personal allowance.
When you first start a job with a new employer, you’ll often be placed on what’s known as an ‘emergency’ tax code. This is usually because HMRC hasn’t yet given your employer the correct tax code for you. If you’re on an emergency tax code, this essentially means you pay tax on all your income above the personal allowance, so no other allowances you might qualify for are taken into consideration. You’ll only be able to move onto the correct code once HMRC has sent it to your new employer. Once this happens, any overpaid tax can be refunded via your next pay packet.
You can find more information on the different tax codes and what they mean here.
Watch out for unsolicited emails or text messages which tell you you’re owed a tax refund and ask you to click on a link or visit a particular website in order to make a claim. These are usually phishing emails designed to get you to hand over personal information which can then be used to steal money from you.
Never click on any link, even if it looks authentic, or give out your bank details if requested by an email or text message. Instead, contact the organisation involved directly and see whether they have contacted you. You can report suspected phishing or spam texts to your mobile network provider by forwarding them to 7726. Make sure you’ve installed the latest software and app updates to protect your devices from the latest cyber security threats too. Find out more about some of the scams that are currently doing the rounds in our article Types of scam and how to avoid them.