Most people assume that if they're employed and pay tax through PAYE (Pay As You Earn), everything is calculated automatically and accurately. While that's often the case, it's certainly not guaranteed.

Recent analysis suggests that more than 730,000 PAYE tax refunds went unclaimed last year, with the average repayment worth around £855. That represents hundreds of millions of pounds that remains with HMRC simply because people haven't realised they're entitled to it or haven't claimed it.

Why do PAYE tax refunds happen?

PAYE is designed to collect the correct amount of tax throughout the year, but it's only as accurate as the information HMRC receives. If your circumstances change and those changes aren't reflected immediately, you could end up paying too much tax.

Common situations that can lead to an overpayment include:

• Changing jobs during the tax year.
• Having a period without work.
• Working for more than one employer.
• Being placed on an emergency tax code.
• Receiving a bonus or irregular income.
• Starting to draw a pension.
• Having more than one pension income source.
• Changes to taxable benefits or company benefits.

These are all perfectly normal life events, but they can make your tax position more complicated than many people realise.

Don't assume HMRC will always refund you automatically

Many people expect that if they've overpaid tax, the money will simply appear in their bank account. In reality, while HMRC does issue many refunds automatically, that doesn't happen in every case.

Sometimes HMRC needs further information, sometimes a letter goes unnoticed, and in other cases, the refund remains sitting on your Personal Tax Account until action is taken.

It's therefore worth taking a few minutes to review your tax position, particularly after the end of the tax year or following any significant changes to your employment or pension arrangements.

Pensioners should also check

This isn't just an issue for employees.

Many retirees receive pension income through PAYE, and having multiple pensions, starting to draw benefits, or changing income levels can all affect the amount of tax deducted.

I've spoken to many people over the years who assumed their pension providers had everything covered, only to discover they had been paying the wrong amount of tax.

Be cautious of tax refund companies

If you discover you're due a refund, be wary of companies that offer to reclaim it for you in exchange for a percentage of your repayment.

While some firms provide a legitimate service, many straightforward PAYE refunds can be claimed directly through HMRC at no cost. Paying a fee could simply mean giving away part of the money that's already yours.

The bottom line

A tax refund won't make everyone thousands of pounds better off, but an average repayment of around £855 is certainly worth checking for.

If you've changed jobs, started or altered pension income, had multiple employers, or experienced any significant change in your finances over the last tax year, it's worth reviewing your tax position.

The easiest place to start is your HMRC Personal Tax Account, where you can view your PAYE record, check how much Income Tax you've paid, see whether your tax code is correct and, if applicable, claim any refund you're entitled to. You can access it via the official GOV.UK service: HMRC Personal Tax Account. HMRC also provides a service to check how much Income Tax you paid in the previous tax year: Check how much Income Tax you paid last year.

A few minutes spent checking today could uncover money that rightfully belongs to you.