Back Tax Demand

rollon65

Hello All,


Upon reaching the normal female retirement age at March 2009, my wife continued her part-time working for a further 18 months, deferring claiming her State Pension for 12 of them.
She started drawing her State Pension on 6 April 2010, but also continued working for a further 6 months, then put in a claim to be paid a lump sum in respect of the deferment.
Upon retirement she completed a State Pension Claim Form, supplying all the correct detail in exemplary fashion and sent it in to DWP.
Ultimately she received the lump sum from them, continued to draw her State Pension and nothing more was heard, until May 2013 (this year), when she got a letter from HMRC stating that she owed £1188 in back-taxes.
She only worked for 6 months (April 6, 2010 – September 30, 2010) of the tax year 2010 – 2011 and paid the correct amount of PAYE income tax on those earnings.
Now it appears that HMRC has determined more than two years later that these earnings be added to the 6 months (October 1, 2010 – April 5, 2011) when she only had her State Pension income and the entire amount assessed for tax? Is that correct?
It is important to us as based on our investigations into the situation, if her annual State Pension income was under the £6475 ceiling and therefore free of tax, the lump sum would also be tax free and the claimed tax debt would be invalid.
When she has contacted HMRC in this respect she has had significant differences in their response, but the demand letters keep on coming!
Any clarification would be very much appreciated please!


Thank you.

jem16

rollon65 wrote: »

Hello All,


Upon reaching the normal female retirement age at March 2009, my wife continued her part-time working for a further 18 months, deferring claiming her State Pension for 12 of them.
She started drawing her State Pension on 6 April 2010, but also continued working for a further 6 months, then put in a claim to be paid a lump sum in respect of the deferment.
Upon retirement she completed a State Pension Claim Form, supplying all the correct detail in exemplary fashion and sent it in to DWP.
Ultimately she received the lump sum from them, continued to draw her State Pension and nothing more was heard, until May 2013 (this year), when she got a letter from HMRC stating that she owed £1188 in back-taxes.
She only worked for 6 months (April 6, 2010 – September 30, 2010) of the tax year 2010 – 2011 and paid the correct amount of PAYE income tax on those earnings.
Now it appears that HMRC has determined more than two years later that these earnings be added to the 6 months (October 1, 2010 – April 5, 2011) when she only had her State Pension income and the entire amount assessed for tax? Is that correct?

Yes it is correct. State pension is taxable but is paid gross. Taxable income would be determined by adding up her earnings plus her state pension.

When did she first receive notification of the underpayment?

rollon65

Hello Jem 16,

Many thanks for your welcome response.
My wife first received notification of the amount of tax deemed to be owing on 15 May this year (2013).

Kind regards - rollon65.

xylophone

paid the correct amount of PAYE income tax on those earnings.

But the State pension is also income although paid gross.

What was her total income for the tax year 2010-11?

http://www.hmrc.gov.uk/budget2011/rates-allowances.pdf

jem16

rollon65 wrote: »

Hello Jem 16,

Many thanks for your welcome response.
My wife first received notification of the amount of tax deemed to be owing on 15 May this year (2013).

Kind regards - rollon65.

If this is the first notification, I am wondering if HMRC are outside their time limits and, although you probably do owe the tax, it may be worth appealing under ESC 19A.

Assuming HMRC were notified of her earnings and state pension for tax year 2010/11 at some point during tax year 2011/12, they had until 5th April 2013 to notify you of the underpayment. If the first communication was May 2013 they appear to be out of time.

This all hinges on when they knew about both her earnings and state pension.

Try reading up about this.

http://www.hmrc.gov.uk/dealingwith/esc.htm

rollon65

Hello xylophone, thanks for your input,
Hello again Jem16, same goes to you, thank you.
We are digesting the linked documents at this time and will post back again once we have done that.
Very grateful for your time and knowledge.
Thank you once again - rollon65.

xylophone

Your wife was working and drawing her state pension - did she advise HMRC of this?
http://www.hmrc.gov.uk/pensioners/pension-statepension.htm

rollon65

Hello Both, we are back once again.

My wife earned £2926 from her part-time job (and was debited £538.40 income tax via PAYE in respect of this amount) and received £5897 in respect of her State Pension for the tax year 2010 - 2011.
The State Pension Claim Form submitted to DWP included the declaration of her intention to continue working as I have described earlier and surely would have had to be received at HMRC via DWP so that the information could form the basis of an on-going tax code?
However, the State Pension Claim Form was submitted to DWP on 12 April 2010 and as is the case with an employer, it would have been assumed that the pension income was related to HMRC, there being no other vehicle to implement a PAYE tax deduction after the point that my wife discontinued her employment?

Continued thanks - rollon65.

jem16

rollon65 wrote: »

Hello Both, we are back once again.

My wife earned £2926 from her part-time job (and was debited £538.40 income tax via PAYE in respect of this amount) and received £5897 in respect of her State Pension for the tax year 2010 - 2011.

So total of £8823. Tax due on that would be £470.60.

However you said that she also received a lump sum which would have been taxable. How much was the lump sum and when was it received?

The State Pension Claim Form submitted to DWP included the declaration of her intention to continue working as I have described earlier and surely would have had to be received at HMRC via DWP so that the information could form the basis of an on-going tax code?
However, the State Pension Claim Form was submitted to DWP on 12 April 2010 and as is the case with an employer, it would have been assumed that the pension income was related to HMRC, there being no other vehicle to implement a PAYE tax deduction after the point that my wife discontinued her employment?

Continued thanks - rollon65.

Unfortunately informing the DWP is not the same as informing HMRC which is what your wife should have done.

rollon65

Hello again Jem16,
Thanks for sticking with us still.
The lump sum was £6305 and it was paid in June 2010.
I take on board your closing comment, but I retired on 28 May 2012, working just under 2 months into the 2012 - 2013 tax year and have had nothing like this kind of grief, despite only informing DWP of my intention to retire (because that is what was stated in the pre-retirement literature sent to me from DWP). I don't recall that there was any reference about contacting HMRC.
Other than being miffed that my monthly income (that includes a small private pension which I provided for) has gone down, owing to the fact that all of my additional income for a full 12 months of retirement in this tax year is taxable at 20%, nothing like this has happened to me and I did not (in complete ignorance of the fact that it would appear that DWP and HMRC just do not talk to each other) contact HMRC either.
So it seems to look like there is no alternative but for my wife to withdraw the owed money from where she has invested it and give to the tax man then?
Continued thanks to you - rollon.

jem16

rollon65 wrote: »

Hello again Jem16,
Thanks for sticking with us still.
The lump sum was £6305 and it was paid in June 2010.

So a total income of £15,128 - tax due on that would be £1731.60. Your wife had already paid £538.40 in tax which would leave £1193.20 which is close enough to the £1188 you are quoting as underpaid.

I take on board your closing comment, but I retired on 28 May 2012, working just under 2 months into the 2012 - 2013 tax year and have had nothing like this kind of grief, despite only informing DWP of my intention to retire (because that is what was stated in the pre-retirement literature sent to me from DWP). I don't recall that there was any reference about contacting HMRC.

Did you complete a P161 form for HMRC at any time to claim the age related personal allowance?

As your wife presumably retired at age 60, this would not apply to her.

Unfortunately it is ultimately your wife's responsibility to ensure that her tax code was correct. Starting to receive the state pension whilst still working would have had an effect on her tax and tax code so she should have informed HMRC.

Other than being miffed that my monthly income (that includes a small private pension which I provided for) has gone down, owing to the fact that all of my additional income for a full 12 months of retirement in this tax year is taxable at 20%, nothing like this has happened to me and I did not (in complete ignorance of the fact that it would appear that DWP and HMRC just do not talk to each other) contact HMRC either.

Sorry I am a bit confused by that comment. You are entitled to your personal tax-free allowance so why is all of your "additional" income being taxed at 20%? Additional to what?

What is your tax code for this tax year and what source/s of income do you have?

Perhaps you should also be checking your total income in tax year 2012/13 when you retired to see if it's correct as far as tax is concerned. What tax code was being used by your pension provider?

So it seems to look like there is no alternative but for my wife to withdraw the owed money from where she has invested it and give to the tax man then?
Continued thanks to you - rollon.

Technically she does owe the tax and therefore she should really be paying it.

Whether or not you wish to appeal through ESC 19A as I linked to earlier is entirely up to you. As your wife did not inform HMRC herself, it is not entirely clear when HMRC was made aware of her state pension and lump sum and they may or may not be within the noted timescales.