Help with Mum's tax code

rubia1409_2

Can anyone help me please?

My Mum (in her 70s)has had two letters from HMRC saying that her tax code is K425. They claim her state pension is £13003, but she actually gets around £11,800 in state pension and has a couple of small private pensions that, together with the state pension total just over £14000 per anum. I had a look on the tax code checker and it said that a K means her personal tax allowance is a negative figure! I've tried calling the tax office, but was on hold for 45 minutes without getting through. She's really upset over this and is worrying herself silly about it. Can anyone advise of what her tax code should be?Does anyone know of another number apart from the 9845 399 9627 number we could call or someone we could write to?

She actually gets £11867 state pension, and £2593 per anum from her private pensions. One of her private pensions has the tax code K175X and one had the code BR. She seems to be paying an awful lot of tax for such a small income, as both her private pensions are taxed and her state pension. The tax office letter also says she owes £240!!

HELLLLLLPPPPP! I can't understand any of this

Thank you in advance.

patanne

The state pension goes up in April. Is the figure they have used the one for the year from April not the current figure as that will be the year the new codes are for. They are, correctly, taking the tax due on her state pension from one of her private pensions (the one that has the K code) and she is paying tax on all the second private pension. You need to add all the income she will have in the next tax year and if she is under 75 deduct £9940 and she should be paying tax on that. Also they may be making an adjustment for the £240 underpayment. Have they told her how this has arisen?

Mikeyorks

Her tax code is going to be a negative figure.

Her personal allowance is (should be) £9940. From that you have to deduct the State Pension - as that is taxable but paid gross. So you now have £9940 - £11867 = M£1927.

If there's an underpayment of £240 from a previous year then a further £1200 is deducted. As that is the amount which will collect £240 (£1200 @ 20% = £240)

So you now have a negative figure of M£3127. Which translates to a Code of 312K.

The extra £1200'ish on the Code of 425K is presumably the extra State Pension you suggest HMRC claim she receives? Bear in mind they normally get those figures direct from DWP. So has the State Pension changed recently - as it's taxed on the amount entitled to in the year. Not on the amount paid - although there's not usually much difference where someone has been in receipt for a while.

Write to the HMRC address on the P2 (Coding Notice) and enclose a copy of the statement for 11-12 she should recently have received from DWP? If you're still convinced it's wrong (as it's gone up around 4.6%?).

rubia1409_2

Thank you. Her pension changed last May when my father died. She was told that amount by DWP. Her latest statement from DWP says her pension is increasing to the amount I mentioned before (£11867). She has never received £13003, maybe she should? When my father died she wrote to DWP and told them, and this is the amount they told her she should receive. She's under 75. She's really upset by all this and can't understand how she could owe money. When Dad died we informed everyone so surely it should have been sorted out a year ago?

Mikeyorks

rubia1409 wrote: »

She's really upset by all this and can't understand how she could owe money.

I suspect it's origins are in the pension change from last May? Whilst that may have been signalled - you'll need to dig out the previous Coding Notices to see if it was adequately picked up. (And - if one of her private pensions was inherited from your Dad that would also have had to be translated smoothly).

If you can't get through on the 'phone - just write to HMRC (address as on the P2) and point out the DWP statement amount (copy it to them) suggests the deduction in coding is excessive. As DWP give HMRC the update details .... it's definitely also worth checking the State Pension she had in total for 10-11 matches the amount deducted from last year's code?

Her tax position overall should be as follows (your figures) :

Total income .....(£11867 + £2593) ........ £14460
Personal allowance ............................. £ 9940

Taxable ............................................. £4520

Tax due (£4520 @ 20%) ...................... £904

That would normally equate to £75 per month. But - for this coming year - the £240 underpayment will add an extra £20 each month.

Whilst just over £1100 coming out of pensions totalling £2593 is a high percentage. You need to balance that against the fact the State Pension is being paid gross and the tax on that is bundled into the private pensions.

The alternative is to do it all within Self Assessment .... and that's probably less appealing?

(EDIT. There is one other possibility regarding the £240 underpayment - on reflection. Taking my figures above. The tax due of £904 is being deducted wholly from the private pensions of £2593? If - for example - those pensions are roughly 50:50 at £1300. Then the one at Code BR will produce tax of £260. Which means the other £1300 has to produce the remaining £644?

It can do that .... but only just! As there is a regulatory limit than not more than 50% must be deducted for PAYE purposes .... and £644 from £1300 is right on the borderline.

Therefore - it's essential to check that the BR is operating on the lowest value pension otherwise there is a risk that underpayments will occur (because of the 50% limit) and HMRC will have no choice but to put your Mum on SA)