Back Tax Demand

comeandgo

The tax due is from the lump sum - she has to pay tax on it,it is only ever tax free if the recipient is not a tax payer that year. As she was a 20% tax payer there is 20% owing on that. If she was a 40% taxpayer then she would have to pay 40% of the lump sum.

rollon65

Hello Jem 16,

Many thanks for your last contribution.
I have located an on-line PDF of the Form P161 and honestly don't recall filling in one.
My wife retired at age 61 (+ 23 days).
I refer back to my statement "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." This would be the reason why we would not have done that and we were not, in our ignorance, that we should I'm afraid.
I should not have muddied the waters by including references to my own situation, however: I enjoyed the full £10,500 tax-free allowance over just 10 months of my gross retirement income during my first (part) tax year of retirement, so in effect was able to keep a greater percentage of my income in that tax year.
This, my second tax year of retirement, that same allowance will be relative to 12 months of retirement and once I have hit that £10,500 ceiling, anything in excess of the will be taxable at 20% and as I had already exceeded that figure across the 10 month period a greater proportion of my gross income will be liable to taxation at 20%.
My own tax code for the tax year 2012-2013 was 212P.
I receive (per annum) £8383.96 from the State, that includes some SERPs benefit; £4499.16 from my primary private pension; £2206.08 from the secondary; and £978.60 from a purchased life annuity.
In July this year I received a notice from HMRC indicating that I owed them £311.66 from tax underpaid, relative to health benefits and the like from my last employer which obviously has a bearing on the 2013 -2014 coding.
This they said would be recovered "through my tax code during 2014", although as I can see that my pensions have already been reduced and it's still 2013, they appear to have implement the recovery of that sum already.
I have no basis on which to argue that point.
I shall encourage my wife to at least take a shot at the "timed out" claim with HMRC, but I suspect their response will be similar to the police mantra that "Ignorance is no excuse for breaking the law"!
Most of us will only retire just the once and in that situation the DWP sees fit to send us a document to fill in and return with our desired options. Neither my wife or myself can recall seeing anything of a similar ilk from HMRC.

Kind regards - rollon65.

rollon65

Thanks for that comeandgo,

That certainly seems to be the outcome - it's just the fact that for the other 6 months of the same tax year she wasn't a tax payer at all that confuses us.

Best regards - rollon65.

jem16

rollon65 wrote: »

I enjoyed the full £10,500 tax-free allowance over just 10 months of my gross retirement income during my first (part) tax year of retirement, so in effect was able to keep a greater percentage of my income in that tax year.

The £10,500 allowance was over a full 12 months period and whilst 10 months of that was your retirement income, the other 2 months was your wages income. It all counts as one income in the end.

This, my second tax year of retirement, that same allowance will be relative to 12 months of retirement and once I have hit that £10,500 ceiling, anything in excess of the will be taxable at 20% and as I had already exceeded that figure across the 10 month period a greater proportion of my gross income will be liable to taxation at 20%.

Not really. I would have expected your monthly income to increase over the 12 months from what you received the previous year as your earned income no longer comes into it.

You do realise that tax is taken steadily over the whole 12 months don't you?

My own tax code for the tax year 2012-2013 was 212P.
I receive (per annum) £8383.96 from the State, that includes some SERPs benefit; £4499.16 from my primary private pension; £2206.08 from the secondary; and £978.60 from a purchased life annuity.

Presumably you have more than one tax code?

In July this year I received a notice from HMRC indicating that I owed them £311.66 from tax underpaid, relative to health benefits and the like from my last employer which obviously has a bearing on the 2013 -2014 coding.
This they said would be recovered "through my tax code during 2014", although as I can see that my pensions have already been reduced and it's still 2013, they appear to have implement the recovery of that sum already.

It's never taken in the same tax year so that cannot be the reason. What was your tax code in April of this year? Has it changed since then?

I shall encourage my wife to at least take a shot at the "timed out" claim with HMRC, but I suspect their response will be similar to the police mantra that "Ignorance is no excuse for breaking the law"!

That is true but it does hinge on when they were notified.

Most of us will only retire just the once and in that situation the DWP sees fit to send us a document to fill in and return with our desired options. Neither my wife or myself can recall seeing anything of a similar ilk from HMRC.

Kind regards - rollon65.

HMRC rely on you giving them the information. The only time they would contact you is when approaching age 65 and you may be due the higher personal allowance. Of course that has all changed now too.

rollon65

Good morning Jem16,


Thank you very much once again for your input.


In the same order as you have responded then:


The logic that I quoted came out of the mouth of an HMRC employee, after the previous enquiry with them elicited the information the I was actually about to become “£30 - £40 a week better off”. The person I later spoke to justified his colleagues error of judgement by saying that it “had just been assumed that I had already been retired for an entire tax year”.
As my earned income had been at a higher rate than my subsequent pension income; and as far as I know the tax-free allowance would have been £10,500 in both working and retired mode, would it not follow anyway that my annual net income would have been greater for the 2 months/10 months year and then would inevitably reduce during the following year that was 100% pensioned?


My monthly pension income for the tax year 2013 -2014 (compared to the tax year 2012 – 2013) has varied as follows: £629.76 went up to £644.92 from the State; my primary private pension went down from £399.53 to £374.93; my secondary one went down from £184.04 to £183.84; and my purchased life annuity payment stayed the same (as my provider is the same as per my primary private pension and all of the adjustment was achieved within that along with the tax due on my State Pension).


Adjustments to my tax coding for the years 2012 - 2013 and 2013 - 2014 came thick and fast, sometime with more than one in a week.
Tax Codes for the year 2012 – 2013: (17/5/12) BR; (20/5/12) 714L; (23/5/12) BR again!; (23/5/12, same date!) 798L; (3/6/12) 235P; (13/6/12) 360P; (3/7/12) 360P
Tax Code for the year 2013 – 2014: (25/1/13) 212P. I don't appear to have one that relates to the adjustment HMRC has applied to my pension income for the recovery of the £311.66 that they say I owe them.


The justification for tax underpaid on a P800T calculation form received 16 July 2013 reads:
“The amount of medical expenses benefit included in you PAYE code was lower than the amount taxable. This calculation includes an underpayment for an earlier year”.


You say that HMRC would have contacted me when approaching age 65. In the vastly bulging file that contains the taxation history of my entire working life, I have nothing like that. That is not to dispute what you say, moreover to support my wife's assertion that neither has she.


We really appreciate your persistence with these issues.


Kind regards – rollon65.

xylophone

http://www.hmrc.gov.uk/forms/p161-man.pdf

HMRC used to send one of these at around state pension age but it may be that you did not receive one?

jem16

rollon65 wrote: »

As my earned income had been at a higher rate than my subsequent pension income; and as far as I know the tax-free allowance would have been £10,500 in both working and retired mode, would it not follow anyway that my annual net income would have been greater for the 2 months/10 months year and then would inevitably reduce during the following year that was 100% pensioned?

Yes it would. However I was answering purely on the information given by you that your "retirement" income would be less. I took this to mean purely your retirement income .

My monthly pension income for the tax year 2013 -2014 (compared to the tax year 2012 – 2013) has varied as follows: £629.76 went up to £644.92 from the State; my primary private pension went down from £399.53 to £374.93; my secondary one went down from £184.04 to £183.84; and my purchased life annuity payment stayed the same (as my provider is the same as per my primary private pension and all of the adjustment was achieved within that along with the tax due on my State Pension).

Not unexpected for your primary pension to go down as you would be paying more tax on the state pension which went up.

Purchased Life annuities are taxed in a different way to normal annuities so nothing unexpected with that.

Tax Codes for the year 2012 – 2013: (17/5/12) BR; (20/5/12) 714L; (23/5/12) BR again!; (23/5/12, same date!) 798L; (3/6/12) 235P; (13/6/12) 360P; (3/7/12) 360P
Tax Code for the year 2013 – 2014: (25/1/13) 212P. I don't appear to have one that relates to the adjustment HMRC has applied to my pension income for the recovery of the £311.66 that they say I owe them.

Nothing unusual in many changes once you start retirement until it settles down.

212P is obviously attached to the primary pension. However what code is used for the secondary pension?

As they said they would take the underpayment in 2014/15 tax year you wouldn't expect them to have changed it.

rollon65

Hello xylophone,

Many thanks for that. Not only do I feel that I didn't receive one, but on the actual form it states under Do I need to complete this form? "This form should be used if you reached the age 65 before 06 April 2013 . . . "
I was 65 on 28 May 2013.

Kind regards - rollon65.

jem16

rollon65 wrote: »

Many thanks for that. Not only do I feel that I didn't receive one, but on the actual form it states under Do I need to complete this form? "This form should be used if you reached the age 65 before 06 April 2013 . . . "
I was 65 on 28 May 2013.

The form says that because the age-related personal allowance was abolished from April 2013 for anyone not already 65.

As you were born on May 1948 you should not be receiving the higher personal allowance.

http://www.entitledto.co.uk/help/agerelatedtaxallowance.aspx

I would suggest you contact HMRC to clarify this.

rollon65

Hello Jem16,

Can't thank you enough for sticking with this and am happy to share my headache pills with you!

My secondary pension was a guaranteed "bought out" GRE policy dating back to 1985 and was considered by my IFA to be too good a stand-alone deal to add to my pension acquisition pot. That's all I can tell you about that.
I have assumed 212P for that one too.

Re the claimed underpayment: HMRC actually say "This underpayment will be collected through your tax code during 2014" (rather than 2014 - 2015, as you suggest) - but as my private pensions have gone down, I can only come to the conclusion that what they actually meant was "2013 - 2014", rather than 2014 - 2015 . . . or is there indeed worse to come?

In this entire scenario, my wife and I have only played a RE-active part, rather than a PRO-active one - on the basis that we would be asked for required information, rather than we should anticipate what the two (DWP and HMRC) bodies would like to be informed of. I put it to you that this is the stance that the majority of "Joe Public" would take in our mutual ignorance or otherwise would adopt.

Kind regards - rollon65.