Martin Lewis Sounds Alarm on Widespread Tax Code Errors Costing Billions
Consumer champion Martin Lewis has issued a stark warning that millions of UK households, including workers and pensioners, are likely being charged excessive income tax due to incorrect tax codes, with most unaware of the issue.
In his guidance for the new tax year starting 6 April, the Money Saving Expert founder emphasized the critical need for individuals to verify their tax codes personally, stating it is their responsibility rather than that of employers or HMRC.
Scale of the Problem Revealed Through Data
The magnitude of tax overpayments is substantial. According to a Freedom of Information request by accountancy firm UHY Hacker Young, 5.6 million people overpaid a combined £3.5 billion in income tax in the most recent tax year, averaging approximately £689 per person.
Additional FOI data from MoneySavingExpert indicates HMRC refunded around £3 billion to 4.2 million overpayers in the 2024/25 tax year alone. However, HMRC has no legal duty to automatically notify individuals of overpayments or issue refunds, leaving many out of pocket.
Common Triggers for Tax Code Errors
Tax codes, which are alphanumeric sequences on payslips instructing employers on tax deductions, often become inaccurate after life changes. Lewis highlighted frequent causes, including:
- Starting a new job without a P45 form
- Changes in workplace benefits like a company car
- Having multiple income sources
- Beginning to draw a pension
In such scenarios, HMRC may rely on outdated information, leading to errors. The standard code for 2026/27 is 1257L, reflecting the £12,570 personal allowance; deviations without clear reasons warrant verification.
Steps to Reclaim Overpaid Tax
Fortunately, overpaid tax can be recovered, with claims backdatable up to four years. The quickest methods involve using the HMRC app or personal tax account via gov.uk. MoneySavingExpert also provides a free tax code calculator on its website.
Stefani Williams, Partner at financial advisers Holden & Partners, commented, "Tax codes can change after events such as a job move, starting to draw a pension, or receiving workplace benefits. It's something that's easy to overlook."
She added, "The common theme is that these things don't usually correct themselves automatically. Taking a little time to review your position can make a difference."
Lewis previously stressed on his BBC Sounds podcast, "Do not assume that because it's coming from HMRC that it is right. Millions — and that is not an exaggeration, it's a literal fact — millions are wrong every year," urging proactive checks to avoid financial loss.
