From Tommy McNally, founder of the free Tommys Tax App, and a specialist in claiming tax refunds.
Being made redundant is a horrible experience. It’s difficult not to take it personally, despite the fact that you know it’s because of the economy and not something you’ve done, or not done. However, most people also have practical concerns, caused by the sudden loss of income. There I can help you. You’re almost certainly owed a tax rebate from HMRC, a big one, and it could be in your account within 72 hours.
Income tax is based on your annual salary in April (the start of the financial year), divided into 12 equal payments. But if you lose your job before the end of the tax year (March 2021), then you won’t have earned the amount originally estimated and will have paid too much tax. Most people on PAYE also don’t claim all the allowable expenses. For example, have you worked from home at all? If so, you can claim the cost of utilities against your tax bill.
To find out how much you’re owed, get your 2020 P60 or your last payslip out and note down your total income (YTD) and what you’ve paid in tax. Ignore deductions like pensions, national insurance and student debt repayments on there, for the purposes of this you need to only review the tax.
Check your tax code. The most common one is 1250L. This gives you a personal allowance of £12,500 for the year. If you’ve not earned that this year, then any tax you’ve paid is an overpayment.
If you have work expenses, like your phone bill or utilities (if you’ve worked from home), then you can add that to your personal allowance. Write down all your expenses in a list and categorise them (travel, home office costs, uniform etc). Give yourself a day or two to do this. It’s very easy to overlook expenses and they can make a huge difference to how much tax you need to pay.
So what does that mean in terms of hard cash?
- You should pay 20% of earnings between £12,501 and £50,000. So if you earned say £15,000 since April you should only have paid a maximum of £500. Yet the tax you’ve paid is probably in the region of £2,000 so you would be due a refund of at least £1,500.
- However, if your expenses since April come to £2,500 and your total income was £15,000 all the tax you’ve paid this year is owed to you. i.e. £15,000 (income) minus £2,500 (expenses) = £12,500 (the same as your personal allowance).
HMRC will realise the impact of the redundancy on your tax bill at some point in the next year and you’ll probably get a rebate automatically. However, they won’t know about your expenses unless you tell them. It is therefore worth being proactive about both so you can get the money back into your account as soon as possible.
To claim the rebate yourself go onto https://www.gov.uk/claim-tax-refund and the site will take you through a series of questions. These questions relate to the calculations above so make sure you do them first and that you have all the information you need to hand. HMRC do have a helpline, but they can take a long time to answer (around an hour is typical).
If you’re struggling, you should get professional help. If you get it wrong, then HMRC could fine you (or worse) or you could fail to get the money you’re owed. An accountant will charge you a flat fee. Specialist services, like ours, will do all the calculations for you at no cost and only charge you when you get the money into your account (when you use a specialist that is usually really quick – hours or days instead of weeks). The specialist will talk you through it and we usually identify expenses that you’ve overlooked.
Best of luck!
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