Tax refund following retirement

dreaming

I recently took early retirement (Aug 2013) from my job for which I received a salary of just over £30k - my tax code then was D0. In September I received notification of new tax code of 856L and yesterday received my first pension payment which I was hoping to use to plan my budget for the next few months. However all those plans went out of the window (until next month I guess) as I received a tax rebate of over 3k.
Now I immediately tucked this into a savings account and have no plans to spend it but I want to know if I am likely to have to repay this at the end of the year, as I had a tax refund via cheque last year but the following month had to pay almost the same amount of extra tax via my salary. Apparently this was due to my employers registering my pension drawdown under 2 different numbers, so I had been paying too much tax for a couple of years, and it all got rather messy.
I have raised this latest rebate with my former employers, and also HMRC, but whilst they get their wheels in motion I was wondering if anyone on here can shed any light on this.
Thank you.

zygurat789

D0 is for a second job when you are paying 40% in your first job, bearing in mind that pension income is deferred salary and, therefore, counts as a job.
When it comes to knowing what's gone on and what the likely outcome might be only posting the actual figures will enable someone to help.

dreaming

Thanks. I took a lump sum a couple of years ago so was drawing approx. 6k pa pension which employers managed to have 2 different references on which explains why I had the tax refund earlier this year. As I was still working as well and earning 34k until June that explains the D0 code. From June my salary went down to 30k (I had been seconded to a higher paying role until then) and I left work at the end of August, taking a further lump sum and pension drawdown. This was when my code was changed to 856L (to also take into account the loss of my benefits in kind so the lady at HMRC said) so I knew I was due some tax back but not quite this amount, and I thought I would not get it until the end of this tax year.
I'm sure if you work in this field it is blindingly obvious but why does tax have to be so complicated? Is there a "Dummies Guide to Tax" published anywhere?

jem16

dreaming wrote: »

Thanks. I took a lump sum a couple of years ago so was drawing approx. 6k pa pension which employers managed to have 2 different references on which explains why I had the tax refund earlier this year. As I was still working as well and earning 34k until June that explains the D0 code.

I would have expected your job to have your normal tax code of 944L ( probably less as you have mentioned benefits in kind ) and your pension to either have a BR or D0 code.

Are you saying that the job with a salary of £34k had the D0 code? What did your pension have?

From June my salary went down to 30k (I had been seconded to a higher paying role until then) and I left work at the end of August, taking a further lump sum and pension drawdown. This was when my code was changed to 856L (to also take into account the loss of my benefits in kind so the lady at HMRC said) so I knew I was due some tax back but not quite this amount, and I thought I would not get it until the end of this tax year.

Once a new tax code is used and provided it is cumulative, your refund is automatic if still within the same tax year. A change from D0 to 856L would mean a large tax rebate. To be more precise figures of gross taxable income to date and total tax to date would ne needed.

However can you confirm what tax code your other pension is being paid with?

dreaming

jem16 wrote: »

I would have expected your job to have your normal tax code of 944L ( probably less as you have mentioned benefits in kind ) and your pension to either have a BR or D0 code.
Are you saying that the job with a salary of £34k had the D0 code? What did your pension have?
Once a new tax code is used and provided it is cumulative, your refund is automatic if still within the same tax year. A change from D0 to 856L would mean a large tax rebate. To be more precise figures of gross taxable income to date and total tax to date would ne needed.
However can you confirm what tax code your other pension is being paid with?

Hmm, not sure how to explain this. I commenced pension d/down on 2010 from the company I worked for, and continued in employment. Each month they would credit me with salary (34k on secondment/30k when stepped down) and pension in 1 combined payment. A pension "salary slip" was only provided once a year (April when it changed as index-linked) or if there are any other changes, but normal salary slip was monthly. In May I had tax rebate of just over 1k via cheque from HMRC but in the same month saw a huge tax deduction (of roughly the same amount) on my salary. When I queried this I was told the refund was due to HMRC showing 2 pension drawdowns for the past 3 years (due to company changing the reference numbers) but that I had underpaid on my salary (not sure why/how). That was when my tax code was changed to D0 although actually have just looked at last payslip and see tax code is 0TM1 (what does that mean?). My last working day was 30/08/13 and HMRC notified me that my coding had changed to the 856L and this is what is on the slip showing for my pension received this month.
My last payslip shows cumulative totals of taxable pay of £16k (approx.) and tax deducted of just over 6k. So to get 3k back with my pension was a bit of a shock and I don't want to go mad with it (although that is unlikely;)) and then have to pay it back.
It's not really a big deal as I have already tucked it away, and have raised this with both payroll and HMRC. It's just I know how slow they can be responding and I have always been pretty much on top of this sort of thing. This year however I have found it hard to keep track due to the changes in my salary, bonus payments (which I paid into my pension fund so were tax-free) and redundancy (of which I paid everything above 30k into pension so tax free again). Just trying to get my head round it but failing miserably.

jem16

dreaming wrote: »

That was when my tax code was changed to D0

So if I read that correctly, you were paid your pension and salary in one wage slip? The tax code for that was D0?

That basically meant you were getting no tax-free allowance and paying 40% tax on everything!

although actually have just looked at last payslip and see tax code is 0TM1 (what does that mean?)

It means no tax-free allowance and on a non-cumulative basis. It's possible that this was a final payslip after your normal payslip? The difference between it and BR or D0 is that although you have no allowance tax is being taken appropriately at 20% and 40% depending on the amount. It's not unusual to deal with a final pay in this way.

My last working day was 30/08/13 and HMRC notified me that my coding had changed to the 856L and this is what is on the slip showing for my pension received this month.

So far so good. You are finally getting a tax-free allowance - in your case it's £8560 as opposed to the normal £9440 for this tax year. I presume this is due to the taxable benefits you had whilst working.

My last payslip shows cumulative totals of taxable pay of £16k (approx.) and tax deducted of just over 6k.

You've paid far too much tax here if this was your only income. ( I realise it was salary and pension together) On £16k in August with a 856 tax code you would have £3566.66 tax free ( £8560/12 x 5 ) and £12,433.34 taxed at 20% which is £2486.66. You have paid £6k in tax.

What are the totals on your pension payslip - presumably for September?

Why on earth didn't you question the D0 tax code?

Is the extra pension you have now taken being added on to the first so just one payment or are you being paid 2 separate lots?

dreaming

Thanks Jem16 - am getting more and more bewildered now.

Although salary and pension were paid as net sum each month the details given were for salary only. The pension is only notified once a year (on Index uplift) or if there any other major changes.
After the changes to tax code following refund I did ask why I had code of D0 and was told it was because of the mix-up where I had paid too much tax on pension (as it had been registered twice) but not enough on salary. Unfortunately I did not question it further as there was so much going on at the time and I did not have enough knowledge to doubt that.
On my last pay slip (salary only) following redundancy the tax code was 0TM1 with the cumulative figures I gave previously (and which were salary only). I didn't question the figures as for part of the time I knew I was in the 40% bracket (although this changed in June).
Yesterday I received my pension payment slip. The pension payment is £1,058.36 (backdated to August 30th) and the tax code is 856L (as notified by HMRC in September). The refund is showing as £3,408.80.
Next year I should be below the tax threshold as I will only have my work pension as income and I thought I would be due some tax back for this year but did not expect to get until after April 2014.
I know there are formulae as to how all of this works and I always tried to make sure that my deductions were "reasonable" but this is definitely beyond me.

Thanks for your patience and help.

ETA - I am just receiving 1 pension payment now from company.

jem16

dreaming wrote: »

I didn't question the figures as for part of the time I knew I was in the 40% bracket (although this changed in June).

When you were receiving £34k salary and £6k pension you were only into the higher rate tax bracket by £570 - that's assuming 856L was your normal tax code due to having benefits.

Yesterday I received my pension payment slip. The pension payment is £1,058.36 (backdated to August 30th) and the tax code is 856L (as notified by HMRC in September). The refund is showing as £3,408.80.

Considering you were overpaying tax by such a large amount, this refund doesn't surprise me.

However the only way to be sure is to have the gross figures for salary and pension received so far plus the total tax to date.

I know there are formulae as to how all of this works and I always tried to make sure that my deductions were "reasonable" but this is definitely beyond me.

It's fairly easy to work out. Each month you have 1/12th of your allowances and taxable bands. So for October's pay you are in the 7th month so have 7/12ths of each allowance and taxable band.

ETA - I am just receiving 1 pension payment now from company.

At least that's good news. Once source of income is always easier to get right, tax-wise.

dreaming

Right - feeling a bit more refreshed now and have dug out paperwork. It appears that my tax code on salary slips was for March 2013 was 642L. This changed in April 2013 to D0M1, and then for the remaining time until August 2013 was D0. My P45 on severance shows Total Pay 15,708.71 / Tax 6,283.20.
My pension slip shows tax code in March 2013 as 566L M1, and in May 2013 as 520L (oddly cannot find April's). The pension I was receiving for the period was 517.68 (so April-October = 3,623.76) plus I now have additional pension of 266.05 per month but there were some adjustments to backdate it to Aug 30th 2013. So my gross pay to date (salary and pension) shows on the notification I received on 21/10/13 is 20,035.44 and tax deducted as 3,007.20.

I think I can see it a bit more clearly now. My gross pay (salary and pension) to date is 20,035.44. Deduct my tax allowance of 4,933.33 (8,560/12*7) = 15,102.11. This is what I pay tax on at 20% - is that correct? If that is right then I can see that the tax refund was kosher. I paid more tax at the beginning of the year partly because of my tax code, and partly because I was for that period in the 40% bracket (albeit only just although I did earn some significant overtime so that would have added to it).

Hope this correct as I feel as if I have just sat my O level maths again (which I only just scraped through;)). Thank you for bearing with me on this.

jem16

dreaming wrote: »

Right - feeling a bit more refreshed now and have dug out paperwork. It appears that my tax code on salary slips was for March 2013 was 642L. This changed in April 2013 to D0M1, and then for the remaining time until August 2013 was D0. My P45 on severance shows Total Pay 15,708.71 / Tax 6,283.20.
My pension slip shows tax code in March 2013 as 566L M1, and in May 2013 as 520L (oddly cannot find April's). The pension I was receiving for the period was 517.68 (so April-October = 3,623.76) plus I now have additional pension of 266.05 per month but there were some adjustments to backdate it to Aug 30th 2013. So my gross pay to date (salary and pension) shows on the notification I received on 21/10/13 is 20,035.44 and tax deducted as 3,007.20.

What should have happened was your main income - ie salary - should have been using the main tax code and your secondary income - ie pension - should have used BR or D0.

With only £570 into higher rate tax bracket, what I would have expected to see was your main tax code being given a deduction to take the extra tax at 40%. Your pension should have been given BR as a tax code. Neither should have used D0.

I think I can see it a bit more clearly now. My gross pay (salary and pension) to date is 20,035.44. Deduct my tax allowance of 4,933.33 (8,560/12*7) = 15,102.11. This is what I pay tax on at 20% - is that correct? If that is right then I can see that the tax refund was kosher. I paid more tax at the beginning of the year partly because of my tax code, and partly because I was for that period in the 40% bracket (albeit only just although I did earn some significant overtime so that would have added to it).

Hope this correct as I feel as if I have just sat my O level maths again (which I only just scraped through;)). Thank you for bearing with me on this.

Yes you appear to have got the right idea now.

It should all settle down now with just one income and your tax code being used against it. Just keep an eye on it, especially when the new tax year starts as it should increase to the normal personal allowance as you lose those benefits in kind. Unfortunately this may not happen so keep an eye on it.

dreaming

Thanks for your help jem16. Once I "saw" it, it was blindingly obvious and yes, I should have queried the tax code earlier. As I said with all that was going on at work with the department relocating and many people being redundant it sort of slipped through the net. I shall definitely look out for the change next year as I should just be under the tax threshold.
Will also have to sort out my bank accounts as well so I don't pay tax on those.
Once again many thanks.