65-74 Tax Codes

jem16

mumblub wrote: »

hi jem hes 44 im not sure about the pension bit..

One would assume he doesn't have a state pension at the age of 44.

Basically he should be receiving £7475 of tax-free allowances so he is receiving an extra £140 worth of allowances. This could be for uniform washing or it could be for Professional Fees that he has to pay for his work or it could be an additional allowance to claim the higher rate tax relief on pension contributions.

We can only haxard a guess but his P2 Coding Notice from HRMC should have outlined what he is receiving the extra allowances for.

if you don't have a P2 coding notice and have no idea what the extra allowances are for I suggest you husband phones HMRC and finds out.

In your husband's case though, he does not fit into the subject of this thread which is to discuss tax codes for those age 65-74.

mumblub

thank you for your reply jem.....also im very sorry i didnt realise thats what this thread was..il be more careful in future to check were i post things...but again thank for for been so helpful to me :T

cadenza82

agrinnall wrote: »

What 'they' are you referring to? The state pension will never appear on a payslip received from an employer, in fact I don't think there is any communication about state pension on a regular basis other than the annual notification of what the payment will be in the next year. From what HMRC have told you I would say 10L on the combined income from employment and private pension is correct.

Sorry - the 'they' was the employment earnings and the existing work pension, not the state pension. So, are we saying that the State Pension is just factored out completely? I suppose, at the end of the day, we're not that bothered how the tax is collected, but we want to try, as far as possible, to make sure it's the right amount. The confusing thing for me is that the notes on the latest PAYE code are concerned with those paying the higher rate of tax, and I can't quite see how this all fits in.

System

cadenza82 wrote: »

The total of these three combined is about £42,000.

Having a look at tax calculators online for 2012/13, he should be due a personal allowance of £8,105 which makes the annual tax payable about £6,779.

HMRC had previously sent a tax code of 794L which has just been replaced by 10L. We're having some difficulty working this out - with a tax code of 10L, he'd be paying just short of £10,000 in tax a year. According to their calculations, the personal allowance would reduce to £109 with an adjustment to tax rate bands (£1,715), savings taxable at a higher rate (£8), state pension (£6,109) and taxable expenses (£164) being deducted from the £8,105 personal allowance. This seems to arise from the factor of the state pension not being taxed at source.

Can anyone shed any light on this? If the 10L tax code really does apply, he'd be almost better off retiring now because it seems like putting money down the drain because of being in the higher tax bracket.

David

With an adjustment to the tax rate band that means that HMRC think your dad's total income including his state pension will take him into the 40% tax band.

From HMRC website
'Adjustment' to 20 per cent rate band
You will see this if you have two or more jobs or company pensions at the same time and you pay tax at basic rate (20 per cent) on each - but the level of your income taken together means that you have to pay some tax at the higher rate band of 40 per cent. To collect the additional tax (and make sure you don't end up owing tax at the end of the year) we reduce your tax-free amount for your main job or pension by an amount that has the effect of collecting the additional tax you owe.

So as well has having his total tax free allowance reduced to the £8105 for the under 65's he is being taxed extra based on HMRC thinking his income will exceed £42475 (£8105 + £34370 20% band) in 2012/2013

I would expect that one source of income has a BR tax code and the other 10L.

Get him to contact HMRC to see what estimated income tyhey have based the 10L tax code on.

cadenza82

Pam17 wrote: »

With an adjustment to the tax rate band that means that HMRC think your dad's total income including his state pension will take him into the 40% tax band.

So as well has having his total tax free allowance reduced to the £8105 for the under 65's he is being taxed extra based on HMRC thinking his income will exceed £42475 (£8105 + £34370 20% band) in 2012/2013

I would expect that one source of income has a BR tax code and the other 10L.

Get him to contact HMRC to see what estimated income tyhey have based the 10L tax code on.

I think that is probably right. I think that the total of the three might come in just above the 40% threshold - I've been thinking though that the 40% would only apply if the total income minus the personal allowance was above the threshold - that might be where I'm going wrong?

Mikeyorks

cadenza82 wrote: »

I think that is probably right. I think that the total of the three might come in just above the 40% threshold - I've been thinking though that the 40% would only apply if the total income minus the personal allowance was above the threshold - that might be where I'm going wrong?

For 12-13 the threshold is £42475 if you include the PA of £8105. Or it's £34370 if you exclude it! All of which doesn't take you forward?
The critical bit is that the State Pension is deducted from the PA (to ultimately give you Code 10L). Therefore you exclude the State Pension amount from your £42k if you're using a calculator and putting in the PA as 10L. Or you include the State Pension in the earnings and then use the full 810L (but allowing for the rate band deduction)

What you cannot do - is use the full £42k of earnings and then use the 10L against that. Otherwise you're effectively taxing the State Pension twice.

As he's recently completed a p161 ....... does the Code not align with the forecast earnings made?

cadenza82

Thanks for all your replies - I think I'm finally getting my head round this (he isn't, but that's another hurdle!).

The slight development is that according to him, his pension and pay are not on the same payslip, although they're both county council. The 10L code applies only to the pension (so he says); he says that his pay is taxed at basic rate but that he doesn't receive a tax code for this. This might still work out right, though I would have thought there'd still have to be a tax code for it?

Mikeyorks

Basic rate is a tax code ('BR') in it's own right - if that's what he means. A check of payslips would show?

System

cadenza82 wrote: »

Thanks for all your replies - I think I'm finally getting my head round this (he isn't, but that's another hurdle!).

The slight development is that according to him, his pension and pay are not on the same payslip, although they're both county council. The 10L code applies only to the pension (so he says); he says that his pay is taxed at basic rate but that he doesn't receive a tax code for this. This might still work out right, though I would have thought there'd still have to be a tax code for it?

The salary and private pension are 2 entirely separate sources of income and so they are always taxed separately.
If his employer is operating BR and has been for some time on the instructions of HMRC then no code would be issued each year because there's no change. The reason for a code issued for the pension is the change in tax free allowances and increase in state pension each year.

cadenza82

That's right the employer is operating on BR for the 'pay' and will be on 10L for the pension, with the state pension excluded from the equation. This now seems right.