Five things you need to check on your PAYE tax review now (2024)

Shoring up your finances is more important than ever with the economic fallout from the Covid crisis set to rumble on for months and even years.

The Government will be looking to preserve its tax revenues, and it is up to taxpayers to be vigilant in ensuring HMRC & Customs is not taking more than it should.

Every year, HMRC undertakes a tax review for each of the millions of taxpayers on pay-as-you-earn across the country.

These tax reviews are relevant to anyone who does not have to file a tax return to the Revenue each year, but who HMRC thinks might be paying too much or too little tax.

Here, This is Money, delves deeper into what a tax review is, how and if it differs to a P60 form and five specific areas you need to watch out for when reviewing yours.

What is a P800?

A P800 is also known as a tax calculation, or tax review, and shows the breakdown of all your taxable income and tax paid.

Not everyone will get a P800 tax calculation, but if you’ve made a tax rebate claim or if HMRC thinks you might be underpaying, or if there are are any uncertainties in your tax affairs, you will probably receive one.

What's the point of a tax review?

They are designed to try and address the ‘weaknesses’ in the PAYE system of 'tax withholding' to ensure that everybody pays the correct amount of tax.

For example, by ensuring that people with investment income, which is not subject to any withholding tax, or workplace-linked benefits-in-kind like a company car or private medical insurance, have the correct amount of tax charged on these extras.

Is a tax review the same as a P60?

No, it is not.

The annual P60 form is something all PAYE workers will be familiar with. It sets out in brief terms how much you have earned in the last tax year, and how much cash has been deducted from your pay packet for income tax and national insurance contributions.

P60 forms will be sent out to taxpayers or received online via company payroll systems.The annual tax reviews are, in theory at least, much more detailed and only sent out to employees whose tax affairs are in doubt.

Robert Salter, a director at tax firm Blick Rothenberg, said: 'They should be more than simply a P60 assessment.

'HMRC should be using all of the data that they have about an individual – the P60 (potentially more than 1), P11D plus all the personal investment income and allowable tax relief claims which might be available – e.g. charitable gift aid contributions and whether tax relief is available at the 40% tax rate for the individuals concerned.'

Will I receive a tax review from HMRC?

The tax reviews will be undertaken automatically by HMRC for all PAYE-based taxpayers and should be sent out in the coming weeks and months by letter. The initial focus of the Revenue – at least officially – will be those taxpayers who should expect tax refunds.

Speaking to This is Money, Mr Salter said: 'Whilst the tax reviews are initially prepared by HMRC automatically based on their internal data, taxpayers which are looking to maximise any claims for tax relief – e.g. on qualifying business expenses or homeworking costs – will be obliged to provide such information to HMRC directly (e.g. via their personal tax account at HMRC).'

Not everyone will receive one, but if HMRC think you may be paying too much or too little tax, you'll get one.

Can things go wrong when it comes to your tax review?

Sadly, as with most tax-related matters, yes, things can go haywire when it comes to your tax review, and this is why is pays to be vigilant and let HMRC know about anything you are concerned about.

Expert Mr Salter told This is Money: 'Experience shows that information is often missing in the HMRC calculations and the refunds or liabilities which the Revenue initially assess can be wrong.

'People need to check what they are being asked to pay or what refunds they are getting back as refunds can be clawed back and not paying the Revenue what they owe can result in fines and interest payments.'

There are five key points taxpayers need to watch out for when it comes to their tax review, according to Mr Salter.

1. Capturing all employment-linked income

The Revenue review is designed to review all the employment-related income which someone receives in the tax year.

This can create particular issues for people who, for example, have two jobs during the year or receive both an income from employment and a pension. One example of this would be someone who used to work in the military but now works for a private company in a different sector.

It is up to you as the taxpayer to make sure HMRC has all the information it needs about all your income streams from salaries, pensions and benefits-in-kind.

You may also receive income from sources unrelated to your work, for example in the form of dividends.

2. Capturing all non-employment related income

On the non-employment related income stream front, Mr Salter told This is Money: 'Individuals are taxable in the UK on their investment income and capital gains – subject to certain allowances and reliefs – e.g. the first £1,000 of bank interest is tax free for 20% taxpayers.

'Capital Gains are usually tax free subject to the annual exemption limit of £12,000.

'Whilst HMRC would usually have access to some personal investment income for taxpayers – e.g. bank interest details are provided by UK banks to HMRC – HMRC will not have access to all investment income and capital gains data. For example, HMRC may not have access to foreign bank interest income or all capital gains taxable transactions and the taxpayer has the obligation to ensure such data is provided to the Revenue were appropriate.

'Earnings within an ISA – whether a cash ISA or an Investment ISA would not be taxable income and can be ‘ignored’ for these purposes.'

3. Watch out for business expenses and deductions

Another point to be aware of when updating HMRC about your circ*mstances in light of its tax review concerns business expenses and deductions. You might be able to get tax relief on certain costs and expenses, which will bring your overall tax bill down.

HMRC will not know if someone can claim additional tax relief in respect of their personal subscriptions to approved professional bodies. The Royal Association of British Dairy Farmers and the Royal Academy of Dance are just two of the swathes of organisations on HMRC's extensive tax relief list.

Mr Salter said: 'Similarly, HMRC will not know if taxpayers have incurred direct costs on business travel, which has not been reimbursed by the employer or not. Taxpayers therefore need to ensure that the Revenue is notified of any such amounts which can be claimed against the taxable income.'

4. Pension and gift aid contributions

Taxpayers making personal pension contributions (subject to annual limits) and gift aid payments receive ‘tax relief’ at 20 per cent on such amounts.

But, they are entitled to tax relief at their top rate of tax.

Mr Salter said: 'Therefore individuals making personal pension payments (either directly or via their payroll deductions), should ensure that the HMRC tax review both correctly captures these deductions (experience shows that gift aid payments in particular are not captured within the Revenue tax reviews), and provides for tax relief at 40% in appropriate cases.

'Those taxpayers who pay their pension contributions via an employer ‘salary sacrifice’ arrangement – i.e. whereby they take a lower legal salary and the employer has full legal responsibility for paying the relevant pension contributions would not be entitled to any additional pension tax relief.'

5. Marriage allowance relief matters

The Marriage Allowance allows married couples and those in a civil partnership, to ‘transfer’ tax relief between themselves, where various criteria are satisfied.

Mr Salter told This is Money: 'The allowance is available where both partners, for example, where one partner is non-taxable (e.g. all income is below the personal tax allowance of £12,500) and their partner is taxable only at the basic rate (the relief isn’t available where one partner is taxable at 40% or higher).

'The Marriage Allowance enables the recipient to claim a maximum tax credit of £250 against their income. Partners who’ve not already claimed the Marriage Allowance for the 2019/20 tax year would be able to claim it retrospectively (e.g. on receipt of their tax review), if appropriate.'

Individuals earning over £50,000 a year and receiving child benefit or living with their partner who receives child benefit will be subject to the child benefit higher income benefit charge.

This CHIBC claws back the value of the child benefit, where at least one partner in a relationship earns over £50,000 a year. If you earn over £50,000 and you know, for example, that your partner has been receiving child benefit for children who live with you, you are responsible for ensuring that the tax clawback on the child benefit is correctly accounted for as part of HMRC's tax review.

What do do if you are worried about your tax review

As with anything to do with tax, the tax review can be complicated and cost you money if you are not careful.

Anyone worried about whether or not HMRC has correct and sufficient information about their finances for tax purposes should phone or write to the Revenue to check they have everything they need.

For some people, it may be worthwhile considering hiring a tax expert or other financial adviser to help you sort out your tax problems, though this comes at a cost and you will need to do your homework to check that the expert is reputable.

Mr Salter told This is Money: 'People who spot errors in their personal tax reconciliations will need to discuss them with the Revenue directly, though those with online personal tax accounts with HMRC should be able to notify the Revenue via these accounts.'