State pension taxation

potternewton

I have just turned 60 and received State Pension for the first time half way through the year yet the Revenue have decided to estimate the amount of Pension I will receive for the year is for the whole year i.e. XXXX instead of YYY. XXXX being the higher amount and reduced my allowances by XXXX. Can they do this? I did ring them and was given some gobblegook but was assured that I would only pay tax on YYY.

mtem74

They put you on a week1/month1 coding. Basically your tax code will only take into account what tax you owe for that pay period.
The reason not to put the exact amount in your coding, is that you would then be given a cumulative coding.
Once your payroll operated the coding it would have to take into account all the pay etc. you had until that point in time and what tax you should have paid on it.
It would look as though you had been receiving your pension since April but not paid a penny tax on it and all that tax would be taken in one go.

CLAPTON

difficult to say without seeing the numbers

Mikeyorks

They should have issued a P161 prior to you receiving the pension - in order you could state the value / from date. And then they would code that out. But a bit academic as Pension Service advise HMRC once a pension is being paid.
But it should only reflect, in your coding, the amount being 'earned' in the year to 5.4.09. But do watch that with Pensions, unusually, it's the sum you are entitled to in the year that's coded out ... not the amount paid (unless you formally defer). But not too much difference there - unless you opt to be paid 13 weeks in arrears.

System

P161 is a bit academic for someone turning 60 assuming HMRC do receive notification of the rate of State pension. However it is very important when it is sent out at age 65.
Failure to return the P161 at 65 and again 75 can result in the pensioner not being allocated their age allowance. The P161 is vital for letting HMRC have an estimate of the pensioners total taxable income so that they can calculate how much of the age allowance they are entitled to and code them accordingly.

jimmo

Just to put it another way around, for the first 6 months of the year you have paid tax on the basis that your annual rate of income was simply your annual rate of wages.
For the second 6 months you will be paying on the basis that your annual rate of income is your annual rate of wages plus your annual rate of pension.
It does work out but in all my 37 years as a taxman no-one ever came up with a simple explanation that could be understood by all.
When many people go onto state pension it is the first real encounter with the taxman they have ever had. That really can be a bit confusing.
Maybe your best test of this will be to look at how much extra tax is deducted from your wages on the first payday after the new code number is operated by your employer.
If you are paid weekly the additional tax should be 20% of your weekly state pension.
If you are paid monthly the additional tax should be 20% of your monthly entitlement to state pension.
However, at this particular time there is some danger that the “£60 rebate” we all got in September is going to distort the figures.