Income Tax & 2008/09 Underpayment

VFM123

Hi,

First time posting here and looking for advice please.

I pay tax under PAYE.

I currently earn from my main employment about £34k (gross) per annum and from an HM Forces Pension about £13k (gross) per annum.

I've been in receipt of the pension since 1996 (it's indexed link (until recently) and has risen steadily over the years to £13k). Since its inception, I've paid Basic Rate tax on my pension and used my tax allowances against my main employment, all was fine until a few months ago when I was contacted by HMRC and advised that my tax code was incorrect. They appear now to have combined my main employment salary and my HM Forces pension to arrive at a near £47k income. As a consequence, they've reduced my tax allowance on my main employment - now down to 380L (I'm married aged over 60 under 65). I'm still paying BR on my HM Forces pension.

I've now been contacted by HMRC to advise that I underpaid tax in the year 2008/09 by about £1200 and they want to recoup this in 2010/11.

Questions:

a. Should the salary from my main employment and HM Forces pension have been combined in this way, particularly as I've always paid BR on my pension?
b. Should my tax code have been reduced?
c. Am I liable for the perceived 'underpayment' being applied for 2008/09?

Many thanks

Gertie_Walker

a. Yes - all your income, from whatever source is combined in order to ascertin your total tax liability.
b. Yes - you are a higher rate tax payer and, as BR tax only is being deducted from your pension, an ajustment needs to be made to your main code to collect the higher rate tax.
c. It sounds like it. You were a higher rate taxpayer but only had BR tax deducted. You should have infomred HMRC of this.