Unpaid tax being sought on Mil Pension

conar686

For the last 10 yr since leaving the Army I have received my Pension with the Tax paid @ source (PAYE).

Today I received a tax bill (£3500) for unpaid Tax as I was being taxed at the wrong amount (22 instead of 40%).

My point being, I do not receive any paperwork from the Army Pensions fund, I assumed that as it was taxed @ source there was no need to worry & as my normal Tax return is so simple I was told not to file anymore claims 3 yrs ago.

How am I meant to know if there is a problem & where do I go to seek redress for a fault that is clearly not all mine.

MAC

cash99

Hate to break this to you, but you are entirely responsible for paying the right amount of tax on you income, under self assessment.

You may be able to get some of the tax recovered through your tax code, but otherwise you will have to pay up/

a&akay

I have an Army pension taxed at the basic rate and a job, taxed likewise. I am well into the 40% bracket on the combined gross income. As others have posted, you are responsible for declaring your income under self assessment. However, you can get some of your own back. I save the £3000 tax due for the 40% part in my wife's savings account, ICESAVE at 5.45% tax free, as she does not work. This earns us over £150 for no real effort. If you register for self assessment on the IR site you can opt not to have the extra tax deducted at source. You do however have to save the relevant amount every month so you can pay it off. The IR self assessment site says how much you have to pay and when (31 Jan and Jul every year).

rosysparkle

Did you not realise that your total taxable income was above the 40% threshold?

conar686

rosysparkle wrote:

Did you not realise that your total taxable income was above the 40% threshold?

I assumed as this was taxed at source that the Pensions fund would register the appropriate tax code.

The key here is assume that a Govt department would actually talk to another & ensure that my data was correct.

MAC

Mikeyorks

conar686 wrote:

The key here is assume that a Govt department would actually talk to another & ensure that my data was correct.

MAC

It probably is correct .. in isolation. But one suspects you have other income (job / State Pension??) which is pushing you over the 40% threshold and which you have not linked to your Army pension .... thereby creating the problem?

mbamick

I've been out a few myself Conar686, and this is a common problem. Paymaster Limited assume that your pension is your only source of income so applies a standard tax code [503L in 2006-07] to your pension. This code ensures that the first £5,035 of your annual pension income remains untaxed, you then pay 10% on the next £2010 and 22% on the rest.

The problem comes when you get a new job, and those !!!!!!s ALSO assume that you should be taxed with a 535L tax code. The result is that you get £10,070 of untaxed income [2 x £5035, rather than 1 x £5035]. In essence, you get £5035 untaxed - but it should be taxed at your highest tax-rate.

Previous posts have suggested that you won't have a leg to stand on, and they are right. Your payslip will show your PAYE tax code, and the Form P60 (Substitute) and all ADVICE OF PAYMENT notices from Paymaster Limited also show the tax Code applied too; and the old adage of ignorance of the law is no defence applies here mate. The sad thing is that no-one is notified of this anomaly as part of the resettlement process. IUf you were made aware of it, then you would have the choice whether to notify HMRC or risk it.

The problem appears to be down to the fact that HM Revenue & Customs work on a regional basis, rather than operating on a centralised basis. That is to say, the tax administration for all Military pay & pensions is administered by PD5 at Cardiff, and the wages from your curent employer wil be administered by a regional office [i.e. Bournemouth, Leeds, etc]. It's !!!!!!, but there you have it.

If it's any consolation, I switched on to the problem as soon as I was discharged, and wrote to the taxman; 5 years on and they still haven't got it right for me.

That said, if you've been out 10 years, then you should look on the bright side. If you look at the numbers below, they list the Tax Free Allowances for the last 10 years. You'll see that, if you had enjoyed 2 lots of tax-free allowance, and should have paid 40% on the residual amount, the true underpayment would be over £18k.

I had a mate that didn't realise the problem until the Taxman came knocking on his door last year. He got out at 45 and was 64 years old last year; so he was a little worried. They agreed that they would only go back 3 years; so he was quite happy with a £3k bill.

Tax-Free Allowances [last 10 years]
1997-98 4,045
1998-99 4,195
1999-00 4,335
2000-01 4,385
2001-02 4,535
2002-03 4,615
2003-04 4,615
2004-05 4,745
2005-06 4,895
2006-07 5,035

Total 45,400

40% x 45,400 = £18,160
18% x £45,400 = £8,172

conar686

RIght or wrong, they have written & apologised for their oversight & error, however they are still asking for the money & have applied to take out of next years tax.

This step will cause me financial distress & I have requested that they do not do this and request another repayment plan based on what I can afford rather than what they can gouge out of me

Tks for all the advice - duly noted - Taxes aaaaaaaaaaarggh

MAC