Weekly State Pension - Which Tax Year

keithpw

I have recently started taking my state pension weekly. A payment is due on Monday 2nd April 2012. Will this be taxed in 2011/12 or 2012/13 tax year? Think HMRC consider it 2012/13. Are they right?

xylophone

If the payment is received on 2 April 2012 then surely it is received in the tax year 2011-12? (6 April 2011-5 April 2012)
The tax year 2012-2013 starts on 6 April 2012?

keithpw

Agree the tax year starts on 6th April but this payment will be received on 2nd. Confused.

xylophone

The tax year 2011-2012 started on 6 April 2011 and will end on 5 April 2012.
The tax year 2012-2013 will start on 6 April 2012 and end on 5 April 2013.

keithpw

Exactly. So perhaps HMRC are treating the payment on 2nd April as in advance for week 2nd-9th therefore in 2012/13? Will check with them.

xylophone

For people who reached State Pension age before 6 April 2010, state pension payments
generally began from the pension payday on or following the day they reached State Pension
age. Pension payday is normally Monday. Payments are made in advance, if paid weekly,
and in arrears if paid four-weekly or less frequently.

The rules changed for people reaching State Pension age from 6 April 2010. A payday is
now allocated according to the final two digits of the customer’s National Insurance number.
Payment is weekly, fortnightly or four-weekly in arrears. There is a new part-week payment
for people who move onto the state pension from a working age benefit and there is a gap
until the start of their first full benefit week for State Pension.


People whose number ends in 00 to 19 will be paid on Monday, 20-39 Tuesday, 40-59 Wednesday, 60-79 Thursday and 80 to 99 Friday.

However it seems to me that income received in a tax year is subject to tax in that tax year?

CLAPTON

xylophone wrote: »

However it seems to me that income received in a tax year is subject to tax in that tax year?

in line with the government committed to simplify the tax system, it is generally true that the receipt of the money is usually the deciding factor for which tax year the income falls ( for ordinary people )
however this is not so for state pension

xylophone

http://www.hmrc.gov.uk/manuals/eimanual/eim74101.htm

agrinnall

CLAPTON wrote: »

in line with the government committed to simplify the tax system, it is generally true that the receipt of the money is usually the deciding factor for which tax year the income falls ( for ordinary people )
however this is not so for state pension

Clapton, can you expand on this and explain why it isn't the case for the state pension (unless it's all explained somewhere in EIM74101, in which case I give up)?

xylophone

EIM74101 - Amount of pension income charged to tax

The amount of taxable pension income is determined by reference to the relevant Chapter of ITEPA 2003 that applies to the pension or annuity in question. In many cases, the taxable pension income for a tax year is the amount accruing in that year irrespective of when any amount is actually paid. Where accruals basis applies, the pension, etc. should be assessed on the amounts that the pensioner is entitled to in the tax year

Pensioners are often content to pay income tax on the amount received in a year, as, in most years the amounts accruing and received are similar. However, it is possible in certain circumstances for the amounts to be different. If a taxpayer requests the statutory basis this should be accepted.

The following table shows how to find the amount of taxable pension income for different categories of pension income.
United Kingdom social security pensions Full amount accruing in the tax year (see EIM74600)

EIM74102 - Amount of pension income charged to tax: accruals basis and pensions paid in advance
Accruals basis
See EIM74101 for a list of the categories of pension income to which accruals basis applies. See EIM74103 for guidance on dealing with payments of pension arrears.

Pensions paid in advance
For pensions paid in advance, the following examples illustrate how entitlement differs from receipt.

Example 1
An employee retired on 31 December 2003 and became entitled to a pension payable monthly in advance. The pensioner received four payments between 1 January 2004 and 5 April 2004 but is taxable for 2003/04 on only three of them. Strictly, 5/30 of the payment received on 1 April 2004 is assessable in 2003/04 while the other 25/30 accrues in 2004/05.

Example 2
A pensioner is entitled to a pension paid in advance. In the year of death an excessive payment is made. Under the accruals basis only amounts to which the recipient is entitled may be assessed. In consequence, the excess should not be charged to tax, even if the payer does not recover it.

For advance/arrears of state pension see my previous post.