HMRC alert: Millions warned 'you may never see that money again' as £8.9billion tax is overpaid

Around 2.6 million people who filed self-assessment tax returns paid an estimated £8.9 billion more than they owed to HMRC last year, according to research by accountancy firm UHY Hacker Young.

The findings, based on data obtained through a Freedom of Information request, show many people do not realise they are due a refund.

HMRC does not automatically fix these overpayments or send the money back.

Instead, taxpayers must identify the mistake themselves and formally ask for a refund, meaning billions of pounds could go unclaimed.

The issue is largely caused by the Payment on Account system. This requires self-assessment taxpayers to make advance payments based on the previous year’s tax bill, which can lead to overpayment if their income falls.

When someone's earnings fall compared to the prior year, they inevitably pay too much, since their instalments reflect income they no longer receive.

UHY Hacker Young identifies this structural flaw as the primary driver behind millions of people surrendering more than necessary to the taxman.

Simple errors on forms also contribute to the problem, including entering incorrect salary figures or failing to claim legitimate business expenses such as travel costs and supplies.

Recovering overpaid tax proves neither quick nor straightforward. HMRC backlogs mean those seeking refunds face lengthy delays, with some waiting between 18 and 24 months before receiving their money.

The accountancy firm advises anyone completing a self-assessment return to scrutinise their income assumptions thoroughly and pursue any identified overpayments without delay.

UHY Hacker Young stresses that taxpayers bear full responsibility for detecting errors on their submissions.

The tax office will not flag that someone has paid excessive amounts, meaning those who fail to review their returns carefully risk losing their money permanently.

Neela Chauhan, Partner at UHY Hacker Young, says: "Self-assessment is supposed to ensure people pay the right amount of tax, but for millions it means they are being overtaxed billions of pounds.

"Self-assessment taxpayers must check whether they have paid the correct amount. Refunds are not automatic and HMRC will not proactively tell you that you’ve paid too much.

"If you don’t check your return carefully and follow up, you may never see that money again.

"There are even cases where taxpayers have identified overpayments and HMRC are unnecessarily withholding money which is causing people a lot of undue stress.

"Any overpaid tax is essentially a low interest loan to HMRC so should be chased up as quickly as possible."