tax/pension woes of a part time pensioner ;)

obvious

Hi all. My mum is concerned that she's paying too much tax and on the face of it I'd have to agree.

Tax allowance: £5225
Code: K125

Income:
State pension £4949PA taxed yearly !?
Employer pension 1: c.£775PA taxed at source
Employer pension 2: c.£775PA untaxed at source and about half is SERPS
8 hours part time work a week: £50 - pays around £6 tax.

Now the taxman has told her (and she's already called them to query it) that she has to pay £35 tax a week. He said on the phone that they'd worked it out by adding all the pension income up which comes to around £6480 and then given her a code of K125 as £6480-£5225=£1255 which seems wrong to me.

I thought if she was over her tax allowance by £1250 then the most she'd be liable for is around 20% of that ie £20/month or £5/week not the £35 that she's having to pay at the moment. Plus when you factor in that part of the income is being taxed at source it makes even less sense. Or am I looking at it all wrong?


As an aside, she's hoping to get her pension increased:

She has worked since she was 16 in the UK except for 6 years emigration to Australia 1964-1971 and when she came back to the UK she had to stay at home and look after the kids until starting full time work again in 1977. She remained in full time employment until retirement at 60 about 2 years ago. I mention all this as I understand it will have affected her pension rights? She's unclear whether she should have received pension/tax credits for when she was abroad and/or raising kids but has been told that if she can prove the dates when she out of the country then it will increase her pension although we don't know by how much.

CLAPTON

i'm a bit confused as you say one of her pensions of 775 is taxed at source...what code is that BR?

if its not taxed at source the figures don't seem to add

4949+775+775 =6499 and not 6480
which would give a k127 rather than k125

can you clarify this first before trying to work out the correct tax

obvious

yes I was a bit confused by this as well. She says that she's getting taxed at source on one of the pensions. I'm unable to confirm this at the moment as she's out and about. Let's assume it's basic rate.

Re the maths, I rounded a few of the figures. Somehow I felt bad about posting exact figures with my mums financial info. Rounded figures seemed acceptable as the discrepancy (£35/week tax instead of my estimated maximum £5/week) is so large.

Also she should be getting the 10% rate shouldn't she so that £5/week becomes more like £2.50. :S

CLAPTON

well the calculation you have to do all depends upon the detail and frankly i haven't a clue who you are but no matter.

the way it works is this : assuming that both pensions are actually NOT taxed at source

add 1255 to her salary i.e. 50 x 52 = 2,600 or 3855 in total per annum
then the first 2240 is taxed at 10%
the rest at 22%
so it will be a about 10-11 per week equivalent.

the point being that all her personal allowance has already been used by the state pension and the two small pensions.

obvious

Thanks again. This is more or less what I thought...and you're quite right, there was no real point in rounding the figures.