State Pensions

jennifernil

Presently doing our tax returns.

Our State Pensions are paid weekly in advance to our bank on Mondays. The dates for Easter 2012 meant Monday 9th April was a BH, so our pensions for that were in the bank on Thursday 5th April.

Do I count those payments (at the new higher rates) as income for 2011/12, making 53 payments? This will mean there will be only 51 payments to declare for 12/13.

Or should I leave them to include in the 12/13 returns?

xylophone

http://www.hmrc.gov.uk/manuals/eimanual/EIM74101.htm

jennifernil

Thanks!

Reading that ,I reckon I should just include the 52 payments and leave the one that was paid early to be counted for 12/13.

Yes?

System

State Pension is paid in arrears and you are only taxable on your 52 week entitlement for the year. The start of the tax year doesnt normally coincide with the annual state pension increase - this usually happens in week 2 of the tax year. In most cases the entitlement is 1 week at the old rate and 51 weeks at the new one

JCB2020

When I queried this I was told the tax is payable when the pension entitlement is due not when the money is actually paid

jennifernil

ceiberman wrote: »

State Pension is paid in arrears and you are only taxable on your 52 week entitlement for the year. The start of the tax year doesnt normally coincide with the annual state pension increase - this usually happens in week 2 of the tax year. In most cases the entitlement is 1 week at the old rate and 51 weeks at the new one

We are on the previous scheme, where you could choose 4 weekly, in arrears, or weekly, at that time paid in advance. I believe the weekly is now paid in arrears.

System

Ah, sorry. It doesnt affect the taxable amount, as that's based on the entitlement date rather than date of receipt. If you've got a P2 tax coding notice this should already refelect the 1 week + 51 weeks at new rate.

jennifernil

No, all 52 weeks this year are at the new rate, the amount paid on the 5th April instead of the 9th was the higher amount.

OH has a P2 somewhere, but I don't have a code as I am below the tax threshold, but am reclaiming tax on some bank interest so wanted to be accurate with the pension figures.

I will go with the 52 weeks at the old rate and make a mental note to remember to include the early payment in my 12/13 figures.

jimmo

I think I’ve got it.

My wife’s state Pension is paid fortnightly in arrears and it so happens that she received her final payment at the old rate on 12 April 2012.

The Pensions Service then applied her new rate from 13 April 2012 and she got her first payment at the new rate on 26 April 2012.

There were no adjustments for arrears, they simply applied the new rate from 13 April.

Turning that into tax terms, the Pensions Service interpretation seems to be that she was entitled to the old rate up to her “12 April payday” and entitled to the new rate from 13 April.

Therefore, according to the letter of tax law, my wife State Pension accrual in 2012/13 will be:

6/4/12 to 12/4/12, inclusive (7 days ) at the old rate.

13/4/12 to 5/4/13, inclusive (358 days) at the new rate.

As your State Pension is paid in advance it seems that the Pension Service have deemed that you were entitled to the new rate from your first payday in 2012/13, 9/4/12.

So, very strictly speaking, by accident of paydays, your State Pension accrual in 2012/13 will be:

6/4/12 to 8/4/12, inclusive (3 days) at the old rate.

9/4/12 to 5/4/13, inclusive (362 days) at the old rate.

If you are seeking to maximise your 2011/12 tax refund you will probably need to look back at what happened around the beginning of the tax year as well as at the end of it but if your concern is whether HMRC will catch you fiddling if you don’t get it exactly right I would suggest you are worrying unnecessarily.

If you take a look again at the link posted earlier, but repeated here:

http://www.hmrc.gov.uk/manuals/eimanual/EIM74101.htm

Read the second paragraph again and consider that the maximum we are talking about is the tax on 1 week’s worth of State Pension.

In my wife’s case that would be a little over £20. That may be a lot to you and me but, in HMRC terms, it would cost a lot more than that to send you a letter.

I would simply regard the payment you got on 5 April as being received on 9 April and take it from there.

jennifernil

Yes, that was the conclusion I came to, keeps things simple. Reading your example nearly sent my brain into meltdown!

This is the first time in 5 years that the first payments in the year actually landed in our account before the last day of the previous tax year, but no doubt it will not be the last.

My paltry pension takes me nowhere near my personal allowance, so all tax will be refunded anyway. I try to be accurate so as not to delay my refund. It's not a huge amount as most of my interest is paid gross. but Halifax messed up on one registration, and I have the tax on my "Reward" payments to reclaim anyway.

OH on the other hand has a much larger state pension amount, plus a variable untaxed income from abroad, most of which is not coded out. Keeping the pension money in 12/13 means he gets 12 months longer before he has to hand over the tax on that amount, and helps keep him well out of POAs.

barak

I rely on the SA150 Notes. Provided your weekly entitlement didn't change during the year [i.e. after 11th April 2011] it's surely much simpler than most of the above! You just multiply your weekly entitlement for the year as advised by the Pension Service by 52 [or 53 if there are 53 of 'your' payment days in the tax year].

"If you received State Pension for the full year to 5 April 2012, to calculate
the total amount you were entitled to for the year, multiply your weekly
entitlement by 52. If your weekly entitlement changed during the year you
will need to multiply each amount by the number of weeks for which it was
received, up to a maximum of 52 weeks. For the year ending 5 April 2012,
if you were paid weekly or 4-weekly and your payday was a Wednesday or
Thursday, you need to add one extra week’s pension to the amount
calculated as above because there were 53 Wednesdays or Thursdays during
the full tax year."

See http://www.hmrc.gov.uk/worksheets/sa150.pdf