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5 Critical Steps: How HMRC's £5.8 Million Underpayment Scandal Affects Christmas Workers In 2025

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The festive season often brings a welcome boost of temporary employment, but for thousands of UK workers, it has also brought a financial shock. According to the latest figures for the 2024–2025 tax year, HM Revenue and Customs (HMRC) identified a staggering £5.8 million in wage arrears owed to 25,200 underpaid UK workers, with seasonal staff being particularly vulnerable to both employer non-compliance and complex tax errors. This urgent warning, issued in late 2025, underscores a critical need for every temporary employee to meticulously scrutinise their payslips and tax codes immediately.

This widespread underpayment issue is a dual threat, stemming from two distinct problems: employers failing to meet National Minimum Wage (NMW) and National Living Wage (NLW) obligations, and the common administrative error of placing temporary employees on an incorrect or emergency tax code. The consequences can mean paying far too much Income Tax or simply being denied the legal minimum hourly rate. HMRC has responded by issuing approximately 750 penalties totalling £4.2 million to non-compliant businesses, but the onus remains on the worker to check their own pay and seek a refund or correction.

The Dual Threat: Wage Arrears and Emergency Tax Codes

The term "underpaid" for Christmas workers often refers to two separate, yet equally damaging, financial mistakes. It is crucial for temporary seasonal staff to understand the difference and check for both issues, as they require different corrective actions.

1. National Minimum Wage (NMW) and National Living Wage (NLW) Breaches

The first and most direct form of underpayment is a simple failure to pay the legally mandated hourly rate. This is a common issue for temporary staff, especially those on short-term contracts or working for employers inexperienced with payroll compliance.

  • The Scale of the Problem: In the 2024–2025 tax year, the £5.8 million in arrears identified by HMRC was primarily due to these minimum wage breaches.
  • Current Rates: The National Living Wage (NLW) for workers aged 21 and over is currently £11.44 per hour (rate effective up to April 2025). Younger workers and apprentices have different National Minimum Wage rates.
  • The Risk: Employers can inadvertently breach these rules through illegal deductions for uniforms or training, or by miscalculating working time.

2. The Emergency Tax Code Trap

The second major cause of underpayment is the incorrect application of Income Tax. Many temporary seasonal staff, students, or those taking on a second job over the festive period are mistakenly placed on an emergency tax code, such as 1257 W1, 1257 M1, or 1257 X.

  • What It Means: An emergency tax code is used when an employer does not have a P45 from a previous job or the correct details for a new employee. It essentially prevents the worker from receiving their full tax-free personal allowance (currently £12,570 for the 2024-2025 tax year) in that pay period.
  • The Result: The employee pays too much tax on their wages, meaning their take-home pay is significantly reduced—a form of being financially underpaid.

5 Critical Steps to Check Your Pay and Fix an Error

HMRC is urging all workers to "check their pay" this Christmas season. Taking proactive steps is the only way to ensure you receive the wages you are legally owed and get a refund for any overpaid tax.

Step 1: Check Your Hourly Rate Against the National Living Wage (NLW)

The first check is for minimum wage compliance. You need to verify that your actual hourly earnings meet the legal threshold for your age group.

Action:

Use the official GOV.UK National Minimum Wage and Living Wage calculator. This tool will confirm the rate you should be receiving based on your age and the pay period.

Step 2: Scrutinise Your Payslip for Your Tax Code

Your tax code is the single most important factor in determining how much Income Tax is deducted. It is printed on your payslip and your P60 (if you have one).

Action:

Look for the code next to your gross pay. The standard code for most people with one job is 1257L. If you see a code with an 'M1', 'W1', or 'X' at the end, you are likely on an emergency tax code and paying too much tax.

Step 3: Use HMRC’s Online Income Tax Checker

If you suspect your tax code is wrong, you need to inform HMRC. The quickest way to do this is online.

Action:

Sign in to or create your personal HMRC Personal Tax Account or use the HMRC app. Here, you can check your tax code for the current year, view your income details, and report a change in circumstances, which will prompt HMRC to correct your code.

Step 4: Contact HMRC Directly if the Code is Incorrect

If the online check confirms an error, or if you cannot access the online service, you must contact the tax authority directly.

Action:

Call the HMRC Income Tax helpline on 0300 200 3300. Be prepared with your National Insurance number, P45 (if applicable), and recent payslips. HMRC will work with your employer to issue a new, correct tax code.

Step 5: Seek a Refund for Overpaid Tax or Arrears

If you have been paying too much tax due to an emergency code, or if your employer has been paying you below the minimum wage, you are entitled to a refund.

For Tax Overpayment:

In most cases, once HMRC corrects your tax code, any tax you overpaid will be refunded automatically through your payroll in your next payslip. If the error is not corrected before the end of the tax year (April 5th), HMRC will automatically review your account and issue a refund directly.

For Minimum Wage Arrears:

If the minimum wage calculator shows you were underpaid, you should first raise the issue with your employer. If they refuse to correct the pay, you can contact Acas (Advisory, Conciliation and Arbitration Service) for free, confidential advice on how to proceed with a formal complaint.

The Importance of Payroll Compliance and Tax Awareness

The recurring issue of underpaid Christmas workers highlights a systemic problem in payroll compliance, especially for businesses that rapidly scale up their workforce for the holiday rush. For employers, the consequences of non-compliance are severe: the £4.2 million in penalties issued in the 2024-2025 tax year serves as a stark reminder of the financial and reputational damage.

For the temporary worker, however, the lesson is clear: your payslip is not just a receipt of payment; it is a critical financial document. Understanding entities like your tax code, the National Minimum Wage, and the process for correcting an emergency tax deduction is essential for protecting your earnings. By following these five steps, Christmas workers can ensure they are not among the thousands who are financially short-changed during the most expensive time of the year.

5 Critical Steps: How HMRC's £5.8 Million Underpayment Scandal Affects Christmas Workers in 2025
hmrc christmas workers underpaid
hmrc christmas workers underpaid

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