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  • FIRST POST
    • SilverE
    • By SilverE 6th Aug 17, 2:27 PM
    • 6Posts
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    SilverE
    First year of your State Pension? Check your PAYE code
    • #1
    • 6th Aug 17, 2:27 PM
    First year of your State Pension? Check your PAYE code 6th Aug 17 at 2:27 PM
    When you get a state pension, HMRC work out a reduction to your PAYE code based on what DWP tell them, using their new "dynamic update" system. In the year your pension starts, DWP tell HMRC you are getting a full year's pension instead of a part-year. So HMRC's system takes too much off your tax code.

    This happened on mine, they had reduced my code and claimed I had been underpaying tax. I then had some long phone conversations with HMRC staff and eventually a manager, and they have now corrected my code and are using the right figure for my pension. But this needed a specific update from them, it won't happen automatically in this new system.

    Check your PAYE code calculation on HMRC's website to see what they are doing. If it's wrong, call them up and get them to use the right state pension figure, it can be done.
Page 1
    • Dazed and confused
    • By Dazed and confused 6th Aug 17, 2:46 PM
    • 1,949 Posts
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    Dazed and confused
    • #2
    • 6th Aug 17, 2:46 PM
    • #2
    • 6th Aug 17, 2:46 PM
    Not necessarily true.

    This has cropped up on here from time to time and in the year you start to receive your state pension it can be necessary to include the annual pension amount in your code, but only in some situations.

    This is where the tax code has to be issued on an emergency basis (otherwise known as week 1/month 1) and only applies from that point onwards, not backdated to the start of the tax year. So each time the code is used it takes into account the amount of state pension you are really receiving even though it looks odd in your tax code breakdown (you wouldn't be seen as underpaying in that situation though).

    For example a months state pension is £600 and the annual amount is £7200. Your tax code is reduced by £7200 but it is only used from that point onwards, what happened earlier in the year is ignored (week 1/month 1 basis) so when you are paid that month the code has the effect of making you pay extra tax on £600 worth of state pension.
    • Dazed and confused
    • By Dazed and confused 6th Aug 17, 2:53 PM
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    Dazed and confused
    • #3
    • 6th Aug 17, 2:53 PM
    • #3
    • 6th Aug 17, 2:53 PM
    Just to add in the situation I refer to you assuming the tax code was correct before being altered to include the annual state pension amount then there shouldn't be any tax owed when the tax code is amended to include an annual state pension amount
    • SilverE
    • By SilverE 7th Aug 17, 9:54 AM
    • 6 Posts
    • 2 Thanks
    SilverE
    • #4
    • 7th Aug 17, 9:54 AM
    • #4
    • 7th Aug 17, 9:54 AM
    It's been a long story and I didn't give all the gory details. Yes, there was a Month 1 code, and that was fair, although when first put up on the website it wasn't shown as Month 1 so it appeared wrong at that point. They are now showing them with a suffix "X" - maybe my query/complaint helped prompt them to do so. It didn't help their efficiency to push people off paper coding notices which give proper details onto website notifications that don't, meaning they then have to deal with individual queries and send out individual letters to explain.

    If it had been as simple as that there wouldn't have been a story, I wouldn't have been speaking with an HMRC manager. But the new "Dynamic Update" system has changed the scene. As explained by HMRC, It works on the full year figure given by DWP, and it doesn't allow for the period when there was no pension and so assumes the lower PAYE code should have been in force then: effectively it ignores the Month 1 rationale. So when it scans the data it gets from the RTI (real time info) payroll submissions it decides there has been an underpayment in that period, and it calculates a new Month 1 code intended to collect that supposed underpayment over the remaining months of the year. That's wrong, and the HMRC people I spoke to agreed. Maybe they will make their system smarter in the fullness of time, it's not actually difficult.

    For me, it was only one month out so not a major issue. But another feature of this new system is that when it works out the revised Month 1 code it is trying to collect the full underpayment within the current tax year, while the old basis allowed the earlier months' difference to roll over to next year. So if the same happens to someone whose pension starts in January, it will decide that there has been getting on for £1000 of tax underpaid, and it will all need to be collected in Feb and March, so quite possibly it will try to issue a large negative Month 1 code (a K suffix if I remember rightly). This will cause a real fright. And not just for new pensioners: any code reduction late in the year will run into this. It's going to massively reduce the benefit of a Month 1 code.
    • cbsexec
    • By cbsexec 7th Aug 17, 10:13 AM
    • 331 Posts
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    cbsexec
    • #5
    • 7th Aug 17, 10:13 AM
    • #5
    • 7th Aug 17, 10:13 AM
    Yes happened to me as well. Took a few calls to HMRC. I was told I had a large underpayment because the system assumed I had a full years pension instead of only a few months.
    • Dazed and confused
    • By Dazed and confused 7th Aug 17, 9:38 PM
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    Dazed and confused
    • #6
    • 7th Aug 17, 9:38 PM
    • #6
    • 7th Aug 17, 9:38 PM
    Fair enough, clearly different to the things people have posted in the past!
    • brewerdave
    • By brewerdave 8th Aug 17, 12:49 PM
    • 4,594 Posts
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    brewerdave
    • #7
    • 8th Aug 17, 12:49 PM
    • #7
    • 8th Aug 17, 12:49 PM
    This post fills me with dread - both the OH and I have deferred our state pensions. Sounds like we need to plan to take them as near to the start of a tax year as possible - or be prepared to get a month with no company pension payment!!
    • SilverE
    • By SilverE 8th Aug 17, 1:14 PM
    • 6 Posts
    • 2 Thanks
    SilverE
    • #8
    • 8th Aug 17, 1:14 PM
    • #8
    • 8th Aug 17, 1:14 PM
    You probably would get away with starting in February, given that DWP need to tell HMRC about it, HMRC then need to get the initial Month 1 code out (which will be OK), and that won't hit until March's company pension payroll run, so there won't be time for them to run their "dynamic update" and mess it all up before year end. And you should then be all clear for the next year, it won't need a Month 1 code at all. In fact that sounds like the best time to do it.
    • badmemory
    • By badmemory 8th Aug 17, 1:23 PM
    • 1,053 Posts
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    badmemory
    • #9
    • 8th Aug 17, 1:23 PM
    • #9
    • 8th Aug 17, 1:23 PM
    or be prepared to get a month with no company pension payment!!
    Originally posted by brewerdave
    For those who may really worry about this, the maximum that can be taken in tax is 50% of the payment. So it is bad but not as bad as it could have been!
    • brewerdave
    • By brewerdave 9th Aug 17, 8:49 AM
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    brewerdave
    For those who may really worry about this, the maximum that can be taken in tax is 50% of the payment. So it is bad but not as bad as it could have been!
    Originally posted by badmemory
    ...is that in law ???
    • xylophone
    • By xylophone 9th Aug 17, 9:33 AM
    • 23,646 Posts
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    xylophone
    https://www.cipp.org.uk/news-publications/news/50percentreglimittaxcodes.html
    • badmemory
    • By badmemory 9th Aug 17, 10:46 AM
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    • 1,114 Thanks
    badmemory
    ...is that in law ???
    Originally posted by brewerdave
    The worst tax code you can get is a K code. The HMRC website states that the maximum that can be taken is half the income. The other code you get a personal allowance even if it is zero. A K code gives you a minus allowance. This could be a state pension totalling £14K for the year less your personal allowance of £11500 leaves £2500 needing taxing over and above the tax due on your personal pension. That translates to a tax code of 250K. This if applied to a personal pension of £5000 leaves a taxable amount of £7500. K codes are mostly done on a month 1/week 1 basis too, which can help.

    Sorry that's a bit garbled!

    ETA - just checked Xylophone's link - I should have done that first!
    • 33Lurcher
    • By 33Lurcher 10th Aug 17, 6:10 PM
    • 74 Posts
    • 30 Thanks
    33Lurcher
    Missus got an email from HMRC today asking her to check her online tax estimate as it had changed . She deferred her pension in June 2014 and started taking it in June this year (£141 per week) and her tax code changed to 417L paying tax of £206pm (taken from her LA monthly wage ) .

    After claiming the extra SP weekly instead of the lump sum her new tax code is K219X , her new state pension after deferring is £185 per week although her online tax account shows HMRC have told her employer an additional £10300 income needs to be taxed (think that figure has some extra state pension back pay in from June when she started the claim)

    Does the tax code seem right based on the concerns expressed in the initial post , and can anyone work out what her new monthly tax will be ?

    Thanks
    • badmemory
    • By badmemory 11th Aug 17, 5:19 PM
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    badmemory
    That's interesting as £10300 income is £198 per week for the full year! So something somewhere is not correct.

    The K code (if it wasn't X) would be implying an extra untaxed income of £13690 per annum. Which is over £250 per week. Of course that could be accounted for by the taking of the state pension and the delay in the new tax code being applied. So I think something is not quite right, but what are the dates & what have you in writing. What does the code change notice say? And is her highest rate of tax going to be 20%?
    • 33Lurcher
    • By 33Lurcher 11th Aug 17, 7:33 PM
    • 74 Posts
    • 30 Thanks
    33Lurcher
    Thanks for reply , bit of an update , when we checked the online tax account yesterday her new code was K219X and they saiid she owed £244 unpaid tax and had adjusted her code accordingly to repay that this current tax year .
    She claimed her pension on 1/6/17 and received 3 weeks SP on 21/6/19 then a full 4 weeks SP on 19/7/17 .
    Her tax code was adjusted to 417L in June to reflect this and she paid £206 tax in June & July from her LA monthly wage .
    Her next pay day is 15/8/17 and her online tax account records £206 tax paid , doesn't look like her employer received new tax code from HMRC to reflect the extra state pension of £44 per week .
    When she received her choices letter from pension Service they incorrectly worked out that she was entitled to £198 per week SP (4 yrs deferral instead of the correct 3 yrs) , the second choices letter a couple of weeks ago showed the correct figure of £185 per week .
    Looks like Pension Service have forwarded the original incorrect £198 amount to HMRC hence £10300 shown on her online tax account as extra taxable income .

    Today her tax code has changed again to K258X showing unpaid tax of now £492 , her next SP pay date is 16/8/2017 when she should receive £740 (£185 x 4 weeks) plus any extra state pension backdated to 1st June .

    She is 20% tax payer
    Last edited by 33Lurcher; 11-08-2017 at 8:51 PM. Reason: Add info
    • badmemory
    • By badmemory 12th Aug 17, 12:07 AM
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    badmemory
    Unfortunately, HMRC have another new system which doesn't seem to be working too well. It is recalculating tax due and therefore a new tax code every single day. Luckily only sending a new code to the employer monthly. I suspect that she will have a new tax code every month until the end of this tax year.

    The good news is that it should all work out by the end of the year and that next year should be straight forward.
    • 33Lurcher
    • By 33Lurcher 12th Aug 17, 7:43 AM
    • 74 Posts
    • 30 Thanks
    33Lurcher
    Thanks for reply , her payslip has just gone online and still shows 417L tax code paying £206 from salary so expect the new tax code K258X to kick in from Sept pay .
    • SilverE
    • By SilverE 4th Dec 17, 6:31 PM
    • 6 Posts
    • 2 Thanks
    SilverE
    An update, in case anyone is still following this. DWP are now giving HMRC the correct total first year pension amount, not 12 times the monthly amount. HMRC have recalculated my code w.e.f. December and it is surprisingly accurate in total.


    They are still using their new "month 1" basis which collects any underpayment over the remaining months of the year. I have a modest underpayment which they will therefore collect over 4 months (Dec to Mar): on the old basis this would have been spread to March 2018. So there's still room for a fright if there's a large underpayment only discovered in February, they will try to collect it all in March.
    • badmemory
    • By badmemory 4th Dec 17, 8:23 PM
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    badmemory
    Fortunately they are only allowed to take 50% of the income in tax. An awful lot but at least not all of it!
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