PAYE taxpayers may find themselves with an overpayment of tax or an underpayment of tax due to various circumstances. It is important to know where you stand in regards to PAYE tax payments in case your tax credits are being calculated incorrectly or there is a discrepancy with your tax payments.
PAYE overpayments of tax
When you pay more tax than you are liable for, a PAYE overpayment of tax will have occurred. In the event of an overpayment, a tax refund is applicable. Claiming your tax refund must be done within 4 years of the overpayment otherwise the claim will be nullified. An overpayment may arise when one is out of work due to illness or is unemployed. Failing to claim tax reliefs also contributes to overpayment.
PAYE underpayments of tax
When you pay less tax than you are liable for, it's regarded as a PAYE underpayment of tax. It is the taxpayer’s responsibility to pay the difference to make up for the tax owed. Underpayments can arise from claiming tax credits which you are not liable for.
Checking your tax credit
As a PAYE taxpayer, it is possible to check your tax credit online if you are registered with the Revenue's PAYE Services. Your tax credit certificate will indicate if there is an overpayment or an underpayment on tax. It shows the tax credits your employer is deducting from your tax bill. You can contact the Revenue if you see that your tax credits are not correct.
End of year statement (P21)
A P21 is an end of year statement which you can use to review your tax liability. It shows total income, tax credits and reliefs as well as the PAYE tax paid. It can be useful in determining whether you have tax owing or you have a tax refund due. You can request for your end of year statement at your district tax office or alternatively view it online. The P21 can be requested for as far back as 4 years enabling you to keep up with the tax refunds that may be due to you.
Claiming a tax refund
In order to claim a refund on PAYE overpayment, you must make a request with the Revenue and submit your bank account details. This can be done by filling the relevant form with your district tax office. Your refund will then be paid back by your employer through a check or via your bank account.
Addressing Underpayments
The end of year review will indicate how much tax you owe in the event of an underpayment. Details regarding how the underpayment is to be resolved will also be included. The most common method the Revenue applies is reduction of tax credits for the following year. It can also affect the tax relief you are liable for in the coming year.
For underpayments amounting to larger amounts, however, you might have to make arrangements to pay the difference directly to the Revenue. It may not be feasible to resolve the underpayment via reductions on tax credits. An underpayment will reflect on your tax statement until it is resolved and can incur interest and penalties. Non-payment of taxes owing can warrant legal action from the Revenue.
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