Having underpaid tax

Nine_Lives

Last year was a bit of a change for my mum - as my dad died & she was therefore in receipt of various payouts & such, putting her into a taxpayer status instead of a non-taxpayer.

She had a letter from the tax office this week saying she underpaid tax.

First off, just to say that it isn't being disputed as chances are they're correct. She just can't understand their workings out.

State pension/benefits: £2718 (so this will be payments from my dads pension i guess)
PAYE income: £1785 (this is the one she can't understand. Isn't PAYE related to employment? And she isn't employed due to disability). Tax paid= £53.80
Incapacity Benefit: £5287
Bank & building society interest: £145. Tax paid £29.

She has it says, underpaid by £394.70 & this will be "collected through your tax code during 2013".

Her benefits are incapacity benefit & disability living allowance. Aside from my dads pension, she has no other source of income.

Savvy_Sue

Might help if we knew how old your dad was when he died, and how old your Mum is. And what tax code they have given her on that letter.

If this is an occupational pension from your Dad (which I'm guessing it is as I remember your sister was getting something too?) then that would, I believe, be counted as PAYE income, and a tax code would quite rightly be applied to it. If there's also some state pension, then that would be state pension / benefits.

It often goes wrong in the first year, and has to be adjusted in the second year. But I wouldn't necessarily rely on HMRC getting it right.

You can phone DWP and get them to send out a statement of what's been paid last tax year for pension, benefits etc, and that might be useful.

sweetietot

The PAYE income is probably the pension from your Dad. Does your Mum get Bereavement Allowance or Widowed Parents Allowance?

Nine_Lives

Thanks for that. My dad was 68 when he died & my mum was 49, she's 50 now. She gets no state pension.

As for the allowance - she doesn't get that. She got the 1 off £2k or £1k payment, whatever it was.

jem16

K_P83 wrote: »

State pension/benefits: £2718 (so this will be payments from my dads pension i guess)

No it isn't.

This is either the state pension (although from memory your Mum isn't old enough to receive her state pension as yet) or from taxable state benefits such as Widowed Parents' Allowance, ( which i don't think she is entitled to) or DLA etc. Did your Mum receive Bereavement allowance?

PAYE income: £1785 (this is the one she can't understand. Isn't PAYE related to employment? And she isn't employed due to disability). Tax paid= £53.80

This will be the payment from your Dad's occupational scheme.

Incapacity Benefit: £5287
Bank & building society interest: £145. Tax paid £29.

Fair enough - both taxable.

She has it says, underpaid by £394.70 & this will be "collected through your tax code during 2013".

Can you provide more details as to the calculation as I can't make sense of those figures. HMRC should have included a calculation.

Her benefits are incapacity benefit & disability living allowance.

IB is taxable but DLA isn't.

jem16

K_P83 wrote: »

She got the 1 off £2k or £1k payment, whatever it was.

The £2000 Bereavement Payment is non taxable so that shouldn't be included.

lijaloo

The bereavement payment is a one off tax free payment. If your mum was 49 at the time your dad died she would be entitled to a weekly bereavement allowance but this can't be paid at the same time as incapacity benefit so did the incapacity benefit stop for some reason and she started to get the bereavement allowance?

xylophone

I believe your father died in September 2011?
In view of your mother's age at this point, she will have been entitled to the non-taxable bereavement payment of £2000.

The "PAYE" amount will be the pension from your late father's employer (I assume Oct 2011-Mar 2012). Did your mother not receive a P60 from the pension provider?

The "state benefit" will be either bereavement allowance or some form of widow's pension arising from your father's state pension entitlement?

On top of this she had a full year's IB and some savings interest.

Her total income for the year was £9935. What was her tax code for the year?

Will her IB now need to be adjusted? See http://www.dwp.gov.uk/advisers/claimforms/bb1_print.pdf

Savvy_Sue

KP, it may be worth you reminding us how old your sister was and what stage of education she was at when your dad died: I know she got a 'pension' and there were tax shenanigans with that as well, but I don't remember any of the details. It may be relevant to your mum's situation though.

Nine_Lives

Sorry i haven't got back to update.

Anyway, just to say thanks for the help as ever guys. Very helpful & sorted the confusion out

Savvy_Sue

Are you able to tell us what the confusion was? Might help someone else in future ...