That's according to new research by financial services company Canada Life, which also found almost a third of UK adults discovered they were on the wrong tax code after checking. Three-quarters of those people paid an average of £689 more than they should.
So it's vital you check your payslip for any errors and, if you do find a mistake, ask HMRC to change the code and refund any money you've overpaid.
To help, Which? explains how to check your tax code, what to do if you're on the wrong one, and how to claim back any overpaid money.
Which tax code should you be on?
It's assigned to you by HMRC and tells your employer or pension provider how much tax needs to be taken out of your salary.
In 2024-25, the most common tax code is 1257L, but yours may differ depending on where you live, the level of personal allowance you are entitled to and the rate of tax you need to pay.
Find out more:How do you get put on the wrong tax code?
Sometimes, you may find your tax code changes, and you can end up paying more PAYE (pay as you earn) tax than you should if it's wrong.
There are a number of reasons why that might happen. For example, you may have started a new job, and your new employer wasn't given a P45, you may earn money from a second job, or there has been a change to any benefits you receive. Whatever the reason, if something looks wrong, you should get in touch with HMRC and query it.
Worryingly, however, Canada Life's survey of 2,000 adults revealed nearly one in five UK adults has never checked their tax code and almost four in 10 don’t even know what their tax code means. Those who have checked their tax code have only done so on average once every 16 months.
Find out more:How to change your tax code
In many cases, HMRC picks up tax code issues without you doing anything. But don't wait for that to happen. Ultimately, the onus is on you to make sure your tax code is correct, so if you spot something amiss, report it to the tax office straight away.
Once HMRC has enough information about your circumstances, the code will be adjusted for you. The tax office will then send you something called a 'coding notice' when it's been updated. Your employer or pension provider will also be given the new information.
Remember to check any payslips that you get after that time to make sure the new tax code is appearing.
How to claim a refund
If you think you've overpaid because of a tax code error, you might be eligible for a refund. Once you've told HMRC about the mistake, the tax office will inform you of a refund by post.
The money will then be paid back to you through your wages by adjusting the amount of tax you pay on your payslip. Refunds for tax from previous financial years will be sent by cheque.
There is, however, a limit on how far back you can claim for. The rules are that you must make a claim within four years. That means anyone who overpaid in 2020-21 only has until 5 April 2025 to make a claim to HMRC.
After the cut-off date, the overpaid tax becomes 'closed' to claims – the only exception where you might still be able to get a refund is when the overpayment is down to an error on the part of the tax authority.
Find out more:source https://www.which.co.uk/news/article/tax-code-errors-costing-billions-how-to-check-youre-on-the-right-one-a43Ug8z6FfDZ