Help! - I think I owe the taxman

lolly5648

I retired from my job in March last year at 60 and claimed my state pension. Filled in the forms and got 3 different tax codes, last one was a K code.

Received my pension and assumed they were deducting tax at source (I've always been PAYE and have never filled in a tax form). Just filing my latest letter from the Pensions Service re pension increase when I realised I am receiving my pension gross. As it is about £3000 over my taxable allowance for the year I reckon I owe the taxman quite a bit for the last 15 months.

What should I do - contact the Pensions Office and ask why they are not deducting tax or my tax office?

Am I likely to be fined or charged interest or something for not paying this. Is ignorance an excuse?

Lolly

Debt_Free_Chick

Your State Pension is always paid gross. For some bizarre reason, the State does not operate PAYE to deduct tax, even though this is a State "debt"!

However, your tax code should take into account the tax that would be paid on your State Pension - so they actually collect the tax you owe on your State Pension from any other PAYE income you have. Do you have a private pension or other income?

Mikeyorks

lolly5648 wrote:

What should I do - contact the Pensions Office and ask why they are not deducting tax or my tax office?

Am I likely to be fined or charged interest or something for not paying this. Is ignorance an excuse?

Lolly

Pensions Office first - then your Tax Office, depending on the reply.

You will not be fined - nor should you be charged interest (unless it turns out you have made some sort of statement to the effect your pension is not taxable). On the reasonable assumption it's just a 'misunderstanding' - you should be able to pay any underpayment less than £2000 by having it 'coded out' over 3 years. If that's the way you choose - or you can make a 'voluntary direct payment' of the total underpayment - once you know the sum involved - so it's not hanging about? The latter is not exactly a MSE route - but it is an option if you like fiscal tidiness!

Edit

Apologies - had read this to the effect it was the Pensions Office attached to your previous employer?? If that's not what you meant - are you sure you're underpaying??

lolly5648

Thanks for replies.

The only pension I get at the moment is my state pension. My private one will not be paid until I am 65 (something to do with guarantees). My only other income is interest from a couple of building societies which I told the tax office about originally and from which tax is deducted.

If as Debt-free-chick says, the state pension is always paid gross, then how do I pay tax?

Mikeyorks: yes, I am sure I am not paying tax as I get £166 per week which is over my yearly taxfree allowance.

I will ring the Pension Service but just wanted to know what I was letting myself in for

reddevilled

Sounds to me like you will have to complete a tax return form for the 5 years until you receive a private pension. Any underpayment will be payable 31 January after the financial year in which it was paid.

Speak to the tax office, I'm sure they will be helpful and will appreciate your honesty.

Once you have a private pension, then the tax on your state pension will be collected together with the tax on your private pension.

HTH,

Red

isasmurf

lolly5648 wrote:

If as Debt-free-chick says, the state pension is always paid gross, then how do I pay tax?

Your personal allowance is adjusted to take your state pension into account. This sounds like why you have a K tax code as your pension is more than your basic personal allowance.

http://www.hmrc.gov.uk/pensioners/facts4_2.htm

Mikeyorks

lolly5648 wrote:

If as Debt-free-chick says, the state pension is always paid gross, then how do I pay tax?

Mikeyorks: yes, I am sure I am not paying tax as I get £166 per week which is over my yearly taxfree allowance.

I will ring the Pension Service but just wanted to know what I was letting myself in for

Sorry - you mentioned several tax codes in your original post and I erroneously assumed you were drawing a pension from your employer. Apologies - shouldn't assume.

So - I'm afraid it's Plan 'B'. Don't phone the Pension Service - go straight to your Tax District. The fact they issued a 'K' code appears to suggest they were aware your pension would exceed your annual allowances. In esssence it's a 'negative' code. But I'm a bit unsure who they expected to operate this code, against your pension?

The 'K' code can be operated by your 'employer' - but as you point out you are in limbo there until you reach 65. But it can also be operated by you under a regime known as Direct Collection (DC) - where, in essence, you operate PAYE yourself and pay over the tax quarterly. But it's a system more widely used e.g. against the stipends paid to clergymen - and it's not a system the Revenue try to propagate.

So - I think it would be wise if you simply spoke to your Tax District. I suspect (back to the 'K' code) they must have been under the impression your employer would be operating that code - as there appears little reason to issue it otherwise. As certainly the Pension Service systems cannot use it.

The most likely outcome is that - until your employer comes back into the equation in 5 years time - the Revenue will assess you under Self Assessment, Regrettably that means you completing an SA Return each year - but it should be the shortened 'simple' one?

Be interested to hear how you get on? Before you ring the Revenue - read this :-

http://www.hmrc.gov.uk/sa/pensioner-guide.htm


.....the para under the first bullet is the key one?


Edit - sorry crossed this over a bit with the last 2 posts! Started the reply - then nipped off for my tea! Should have checked - but reply remains relevant and mainly holds hands with those above?

lolly5648

Thanks everyone who replied to my post.

Spoke to a very nice man at the Inland Revenue and he almost apologised to me. He said they had my details, had my P45 etc that my last employer had sent and he had no idea why no-one had sent me a self-assessment form as that is the only way I can pay tax. (You were right Mikeyorks).

They are now going to 'put me into the system' which will take a couple of weeks and then I will get a self-assessment form to fill in each year.

I do wonder if they would ever have caught up with me if I hadnt rung them except I couldnt relax knowing I owe money.

Mikeyorks

lolly5648 wrote:

I do wonder if they would ever have caught up with me if I hadnt rung them except I couldnt relax knowing I owe money.

You will never know !!;) But I suspect they would have done so when your employer kicks back in with a pension? And that would have left a lot of arrears, 5 years down the track.

Tax men and elephants have more in common than just the colour (grey) ........and the tough skins:rotfl:

But - good result? And thanks for completing the circle.