Anyone who is in receipt of either a salary or pension income will at the end of each tax year receive a P60 from their employer or pension provider. Very often these innocuous looking documents are filed without so much as a second glance.

The purpose of me writing this blog is to point out that where there is a code, there is sometimes unclaimed tax relief or more usually, over-payments of tax.

There are many tax codes but for the purpose of this exercise I will deal with  the most common.

L – applies to those people eligible for the basic personal allowance
P – applies to those people between 65 and 74, eligible for the full personal allowance
Y – applies to those people over 75 eligible for the full personal allowance
K – applies when total allowances are less than total deductions
BR – applies when all income is taxed at the basic rate
DO – applies when all income is taxed at the higher rate – 40%

Further details can be obtained from the HMRC website www.hmrc.gov.uk/incometax/codes-basics

So far so good, however when an individual is in receipt of 2 or more sources of income (including state pension income) it is usual for a different tax coding to apply to each P60. It is at this point that errors can occur in the collection of the correct amount of tax. HMRC is responsible for providing the correct tax code to each income provider, it is not the responsibility of the income provider to select the relevant tax code.

It is worth remembering that “tax avoidance” is a legitimate process whereas “tax evasion” is most definitely illegal. Ensuring that the correct amount of tax is being collected could be construed as falling into the former category.

So where do the errors most commonly occur?

1. The level of pension income
2. Age at which basic personal allowance changed to the enhanced personal allowance i.e. at 65 & 75
3. Where an individual will use gift aid and personal pension plan contributions.

Very often errors can go undetected for a number of years. It is worth remembering that HMRC will allow tax refunds for up to 7 years, including the current tax year. This means that it is still possible to reclaim any overpayment of tax from 2005/2006.

Using our knowledge and experience we have been been able to to reclaim up to £3500 in over payments in tax for our clients, based simply on the criteria referred to above. This is a sobering thought particularly in today’s economic climate.

The message is therefore – get digging and check your tax coding notices NOW!

Richard Witcombe is a senior partner at Proposito Financial Planning