Phoenix Personal Pension Query

stowupland4

Please could someone check these figures out they don't make any sense to me.
A few weeks ago I received a letter stating the value of the plan would be £14491.71 (subject to change on the 18/022.
I opted for the whole amount to be paid to me.
I worked it out 14491.71
3622.92 minus 25% tax free lump sum
= 10868.79
2173.75 Minus 20% tax
= 8694.04
+ 3622.92 tax free
= 12317.96 this would be the amount payable.
However
I received a payment of £10983.85.
The next day a letter arrived with a P45 stating
£10868.78 Total Pay (in employment?)
£ 3507.86 Total Tax "
I am aware these plans were not a good idea (if I only knew then what I know now)
Can anyone see how they arrived at their figures.
Thankyou in advance.

Damask

It looks as though you've taken a trivial commutation lump sum.

While you still get the 25% tax-free lump sum, the rest is taxed as PAYE income (as if an employer has given you it as monthly pay.)

Going through your figures again:

Fund Value £14491.71
less 25% tax-free lump sum £3622.93
leaves £10868.78 which is taxable as if it were a monthly earning.

So lets look at the tax (I've dropped the pennies for ease):

Standard personal allowance is £6475 for the year - meaning £540 (approx) for 1 month.

The first £37000 per year is taxed at 20%. Per month, this is £3083.
Anything above this is at 40%.

So, you had £10868 to tax.

First £540 isn't taxed (personal allowance)
Next £3083 is at 20%, giving £616 tax.
This leaves £7245 to be taxed at 40%, giving £2898 tax.

This means total tax paid is £3514.

Now, I know this isn't exactly the number that Phoenix provided, they will have used the calculator at payecalculator.hmrc.gov.uk to calculate the tax to deduct (I've attached its output below.) It's far more precise than my quick explanation. My explanation is purely to give you an overview of how it works.

You've been given a P45 so that any excess income tax can be reclaimed from HMRC.


payecalculator output:

Values Entered

Employee tax code: 647L
Period of pay: Monthly
Is it on a month 1 basis: Yes
Pay this month: £10,868.78
Previous total gross pay to date: £0.00
Previous total tax due to date: £0.00

Payment Date: 18/02/2010
Results

Month Number 11
Pay adjustment (column 4a of P11) £539.92
Total taxable pay (column 5 of P11) £10,328.86
Total tax due this period (column 7 of P11) £3,507.86
HM Revenue & Customs cannot be held liable for incorrect output from this Calculator. Correct information can only result from this Calculator if correct details are entered

dunstonh

Some of the tax is likely to be taken at 40%

For example, I have one on my desk where the fund value is £3563. The 25% was taken off leaving £2672 as a taxable fund.

tax free was £124.52
20% was £719
40% was £1829

When you are issued with the P45 you can get it corrected to match your personal tax position. If you dont want to wait until the end of the tax year when HMRC usually pick up on these things you can contact your tax office and ask for form P53 to be sent to you.

I am aware these plans were not a good idea (if I only knew then what I know now)

Nothing wrong with the plans. You probably just didnt pay enough into it.

jamesd

Do you have any other pensions except the state pensions and this one?

stowupland4

Thank you for your replys, it seems tax has been taken @40% I will contact tax office for a form.