Underpaid tax

whitesatin

I am not very happy this morning as I got a letter from Inland Revenue telling me I have underpaid my tax, not a vast sum at £78 but still annoying. Especially as when I claimed my state pension this year for the first time, I explained that I have a teacher's pension and did I need to notify anyone. I was assured that it would all be sorted out for me and that I didn't need to tell anyone. So, why do I now owe them money?

jem16

whitesatin wrote: »

Especially as when I claimed my state pension this year for the first time, I explained that I have a teacher's pension and did I need to notify anyone.

Who did you explain this to? It should have been HMRC that you told about your state pension starting. They would then have adjusted your tax code to collect the extra tax.

I was assured that it would all be sorted out for me and that I didn't need to tell anyone. So, why do I now owe them money?

It would eventually be sorted out but in the first year especially it's always wise to contact HMRC and tell them.

whitesatin

Thanks, it was the state pension people I contacted. I don't think I made any calls to my tax office. I suppose I have calmed down a bit now but just annoyed that it has taken them 6 months to notice this. It must be common that people get new tax codes, pay more tax etc. when they reach state pension age.

Savvy_Sue

As I understand it, tax is never deducted from your state pension because the DWP doesn't know what other income you have. Personally, I think that's a good thing ...

As jem says, HMRC are the ones who sort it out, eventually, and in the first year of claiming it often takes a bit of sorting out.

whitesatin

Yes, I know that no tax is taken for the state pension, thanks. I expected it to be taken from my teacher's pension but just assumed that they had it all in hand immediately. At the same time there was an increase in the TP so it was difficult to work out what was what at the time then it just continued at that rate, quite a bit less than I had been getting because of the increased tax. I suppose I should have worked it out for myself but, as I said, I thought they had it all in order.

pollypenny

HMRC and the TPA don't seem to talk. I was on a K code initially and the worked on the basis that I had a teacher's pension and a salary.

They owed me. Then I owed them for my AVC, which balanced out. Strangely I still had a bill.

zygurat789

The state pension is taxable income but it is never taxed because the DWP who pay it have no facilities to deduct PAYE and the personal allowance has always been more than the basic state pension. Any tax due, on total income, is deducted by reducing the code number used on other income.
It is, and always has been, the responsibility of the individual to ensure that his/her tax affairs are in order ie disclosing all income to HMRC and ensuring that the correct code number has been used where tax has been deducted at source.
Pensions are really deferred income or another job, the P45 which is received on retirement should be given to the pension provider and any change in code number should be notified to the taxpayer on a P2 form.
HMRC usually send a form to pre-retirees asking for the relevant information for a code number post retirement. Unfortunately in this country we seem to have a cavalier attitude to HMRC communications and they tend to get lost.

Katykat

On this particular subject, after being on ESA for 1 year, it ceased, but I appealed. During the year that I was waiting for appeal I only had my reduced NHS pension which was way below the personal allowance, so paid no tax. I won my appeal and got a years back pay As ESA is taxable, but like state pension, there is no facility for DWP to stop the tax so tax office took it off my NHS pension. This meant that I would have only £5 a month pension for a year. I couldn't face this so I paid it in full. It stung at the time but for me, was better that way.

zygurat789

Katykat wrote: »

On this particular subject, after being on ESA for 1 year, it ceased, but I appealed. During the year that I was waiting for appeal I only had my reduced NHS pension which was way below the personal allowance, so paid no tax. I won my appeal and got a years back pay As ESA is taxable, but like state pension, there is no facility for DWP to stop the tax so tax office took it off my NHS pension. This meant that I would have only £5 a month pension for a year. I couldn't face this so I paid it in full. It stung at the time but for me, was better that way.[/QUOTE]

I hear this quite a lot but I still don't understand it. It doesn't matter whether it is paid from one source of income or another or in a lump sum the amount is the same whichever way you look at it For my money, which it would be if it were my choice, I'd take as long as I could to pay HMRC.

itsanne

I find Inland Revenue a nightmare. I have PoA for my mother whose affairs are very straightforward - or so you would think. She got to the point of becoming extremely agitated whenever a letter arrived, so they all come to me now. My heart sinks whenever one arrives.

They seem incapable of working anything out other than very retrospectively. Why should there be substantial underpayments every year when they have all the information and nothing changes? :mad: One person tells one thing, a second something completely different :mad:.

Sorry, rant over. I'm just not very optimistic that you'll be all sorted after the first year.

Katykat

I hear this quite a lot but I still don't understand it. It doesn't matter whether it is paid from one source of income or another or in a lump sum the amount is the same whichever way you look at it For my money, which it would be if it were my choice, I'd take as long as I could to pay HMRC.[/QUOTE]

I did ring them and ask what the longest term was, which is actually 3 years. I opted to pay in full because it suited me. Like Itsane, my mood drops each time I get that brown envelope in the post. I know that for 3 years I would get agitated every month when I got my pension and for sure, my tax codes would be messed with evry few months so those brown envelopes would be piling up. So I scraped as much money as I could and paid it. Now I can forget about it. As I said, this suited me, may not suit everyone. We have to pay our taxes ( well, most of us do) so I just gritted my teeth.