Could do with some advice please - becoming a taxpayer again

Bogof_Babe

I have just reached state pension age (first payment due tomorrow), and have also just started receiving my occupational pension. Total of these two pensions will be £12,750 in tax year 14-15. I also receive monthly savings interest that I currently don't pay tax on as it was my only income, which will be approx £5K (currently nearer £7K but two bonds maturing shortly and will not be reinvested at anything like the current rates).

Therefore my total income before any tax due will be approx £18K, so exceeding the £10K tax free allowance for next year.

Having received statements for both my state and occupational pension today, I note that neither of them have deducted tax (although my work pension did deduct 20% from a back-payment made for the two months it took them to set it up from the time I applied). I did not take a lump sum, not that this is relevant but just to provide all the facts.

It seems I have to sort the tax requirements out myself, although both the DWP and my occupational pension provider were made aware that I had and will have other sources of income. Don't they liaise with the tax office?

Anyway I'm not sure what I'm supposed to do next. I can inform my savings banks and societies that I am no longer a non-taxpayer, but that won't cover the whole amount I have to pay. Anyway I'm not sure they can adjust this part-way through a fixed term bond?

If I do that, and also advise the DWP and my pension provider that I am a taxpayer, will that result in me being taxed at source on everything, and having to wait until the end of the tax year to have my £2K overpayment refunded?

Any help with this will be greatly appreciated as I'm very confused, and want to get it right!

Savvy_Sue

Tax is never deducted from your state pension. So yes, you do need to make HMRC aware that you have both your state and an occupational pension. And it's wise to try to sort this out now, because if you don't then next tax year you're likely to owe tax for this year.

I'm sure someone will come along and say what forms you should fill in or who you should write to, but expect it to take a while.

jimmo

In theory, a short time before you start to receive State Pension, the Pension Service automatically notifies HMRC of the starting date and rate of State Pension using your NI number as a reference.
Then HMRC link the information to your tax records and, amend your coding.
I’m guessing that you stopped working some time back and so HMRC will have had no live PAYE record for you and could not therefore amend your coding.
Your occupational pension payer is required to notify HMRC when that pension starts so they have presumably only just done that and HMRC should then be able to catch up with State Pension information.
For different reasons HMRC got it wrong when I started to receive State Pension and it seems an awful lot of cases do go wrong. However I sorted mine out with one phone call to HMRC and it would probably be wise for you to do that.
Your occupational pension payslip should include the code number your occupational pension payer is currently using and your PAYE reference, but nowadays your N I number is often more useful.
I can’t fathom out why your pension payer would deduct tax from the late payments and not from the current payments but if you care to share details of amounts of pension, arrears, tax deducted and code number it may become clear.
As far as I can tell, with £7k interest and 3 months worth of pension income you will be borderline for tax during the current year, 2013/14 so if I were you I would notify interest payers in late March or very early April so that you ensure theey start deducting tax only after 5 April.

Bogof_Babe

Excellent replies, thank you so much. I have no objection to sharing details of amounts etc. but I'm just about to start trying to work it out for myself! Never had to keep proper track before as I knew I wasn't getting enough interest to have to pay tax.

When I've done that, I'll take the advice to phone HMRC and set the ball rolling. Will also phone my pension provider to find out what they think they are doing. I can't even work out the amount they state they've paid me to date, as it isn't in line with what I've actually had.

What scared me was hearing that it's the individual's responsiblility to know whether they have to submit a self assessment, and if you don't do so because you didn't know you had to, you'll be fined. Need to find that out pronto.

Bogof_Babe

Made some progress but it's taken most of the day!

Apparently they never take tax off a state pension, so any tax liabilities have to come from my other incomes.

I need to tell all the banks etc. where I have savings bonds to start treating me as a taxpayer, so a few more phone calls to make tomorrow.

Spoke to my occupational pension administrator who was very helpful and said they would commence taking tax off when the relevant taxable amount was notified to them by HMRC. It'll all come right in the end... apparently :think:.

What a palaver to get to speak to someone at HMRC. An automated robotic voice asking me questions, which was rather disconcerting, then half an hour on hold before I finally got to speak to a real person. It's infuriating when they keep butting in to the music to remind callers that there is lots of information on their website. Why didn't I think of that? :doh:

Anyway I feel a lot more relaxed about it now, and the good news is I won't have to self-assess :beer:. Also that I can claim any overpayment back on a R40 after the tax year ends - not that I'll be confident of working out whether I've overpaid or not!

jem16

Bogof_Babe wrote: »

Apparently they never take tax off a state pension, so any tax liabilities have to come from my other incomes.

Correct. All state benefits are paid gross.

Spoke to my occupational pension administrator who was very helpful and said they would commence taking tax off when the relevant taxable amount was notified to them by HMRC.

Your pension administrator doesn't need to know your relevant taxable income. All they need to know is your new tax code which will include a deduction for the state pension.

What tax code is your pension currently using?

It'll all come right in the end... apparently :think:.

It will. However it will happen sooner if you get HMRC to issue a new tax code sooner rather than later.

Anyway I feel a lot more relaxed about it now, and the good news is I won't have to self-assess :beer:.

Wouldn't be necessary in your case.

Also that I can claim any overpayment back on a R40 after the tax year ends - not that I'll be confident of working out whether I've overpaid or not!

You can do yes.

However as things stand you're more likely to be building up an underpayment rather than an overpayment.

The figures and current tax code as jimmo said would help to be more specific.

Bogof_Babe

Current tax code is 944L, so standard rate.

My rough calcs (all figures for current tax year):

Personal allowance = 9440
State pension = 5853.64 (but only 11 weeks left of this year, so 1238.27
Annual occ pension = 6743 (but only 11 weeks left..., so 1426.40

Remaining personal allowance after state pension = 8202
Savings interest received (gross) 6/4/13-present = ~7000
Remaining personal allowance after savings interest = 1202

Therefore tax payable on 225 of occ pension for current tax year, i.e. £45 total. However they have already deducted £165.20 for tax while waiting for my tax code, so maybe I should get a rebate? Or perhaps they will adjust it in my next payment - have to wait and see.

---

While I'm on a roll I'll have a go at next year's too so I have it on record if I get confused again...

Personal allowance = 10000
State pension = 5981
Annual occ pension = ~6743 (not sure if or when small increase due)

Remaining personal allowance after state pension = 4019
Savings interest to be paid net of tax so n/a

Therefore tax payable on 4019 of occ pension for current tax year, i.e. £804 total.

Could a tax code of '40' have been mentioned by HMRC? They did say something but I forgot what it was, and it might have been '40'.

Hope this is something like correct. Back to the drawing board if not .

Thanks for taking the time to help!

jem16

Bogof_Babe wrote: »

Therefore tax payable on 225 of occ pension for current tax year, i.e. £45 total.

I would make it tax at 10% on £225 as you will be able to use the 10% band applicable to savings interest - so £22.50 due.

However they have already deducted £165.20 for tax while waiting for my tax code,

I assume this back-payment that you talk about was paid separately and a BR tax code was used? You then received a normal payment using the 944L tax code?

If that is the case the rebate should have been handled when the 944L tax code was used, unless it's being used on a non-cumulative basis. Was there anything after the 944L code like Wk/Mth1 or something similar?

If it wasn't done like that I can see no sense in taxing some under BR and some under 944L all in the one payment.

While I'm on a roll I'll have a go at next year's too so I have it on record if I get confused again...

Personal allowance = 10000
State pension = 5981
Annual occ pension = ~6743 (not sure if or when small increase due)

Remaining personal allowance after state pension = 4019
Savings interest to be paid net of tax so n/a

Therefore tax payable on 4019 of occ pension for current tax year, i.e. £804 total.

You may have a very small amount of your savings due at 10% but I don't know the rate for the 10% band as yet.

Could a tax code of '40' have been mentioned by HMRC? They did say something but I forgot what it was, and it might have been '40'.

It's likely to be 401L - ie £10,000 minus £5981 = £4019

Bogof_Babe

You are right - tax code on pay slip is 944L MTH 1. I didn't realise that would make a difference!

So I've pretty much got my head around it then? That's good.

I didn't know there was still a 10% tax rate - thought Gordon Brown scrapped it. From what you say it sounds like it still exists for savings interest but not for earnings then?

Off to bed in a minute (just in case you reply again and wonder why I've disappeared). Haven't had to do so much thinking in ages and it's tired me out! Thanks again :T.

jimmo

Jem 16 has beaten me to it again so the remnants of what I had prepared are:-
Pensions are assessable to tax on the accruals basis, not the receipts basis.
http://www.hmrc.gov.uk/manuals/eimanual/EIM74101.htm
In other words you are assessable on the amount you are entitled to in each tax year which is not necessarily the amount you receive.
In my own case that makes no difference to my occupational pension which is paid monthly, I am assessed on what I receive. However my State Pension is paid every 4 weeks and I become entitled the annual increase on the day after my first State Pension payday after 5 April. So my State Pension annual rise is a “moving feast”.
However, HMRC take their figures from the State Pensions Uprating Service and, despite having been a career taxman, I can never reconcile my State Pension entitlement to HMRC’s figures.
Its not a lot out so I find it easier to accept their figures than argue about it.
Turning now to your investment income, HMRC have given you the “book” answer. Tell your payers now to stop paying gross because you are liable to tax now. That is technically correct but to my mind, as long as you understand what is going on I would far rather that I owe HMRC money than they owe me.
The real problems come when somebody finds themselves with a huge tax bill they were not expecting.
If you overpay tax for 2013/14 you may well get it back quite quickly or you might have to wait.
If you underpay then a Self Assessment taxpayer will, at worst, have to pay up on 31 Jan 2015. A non SA taxpayer pay it back, interest free, over 2015/16.
As regards your 2014/15 coding, on your own figures, will be:
Personal Allowance £10,000
Deduct State Pension £5981
Net coding allowances 4019
Code (knock off the units) 401 L
The letter L is rather historic, not quite meaningless, but can be ignored in the context of your current issues.
　

Bogof_Babe

Just clicking Thanks doesn't seem adequate after all that help jimmo, so thought I'd say it as well!

I decided overnight to do some proper calculations as to how much interest I can continue to have tax free up to the end of the year, or conversely how much I'll owe them. Shouldn't be too difficult as I have it all on a spreadsheet, just not grouped into a single table. Job for this afternoon.

Thought I might inform the society that pays me the biggest amount each month (£277) and leave the others. The next biggest (£168) matures in May anyway so I might not need to mess around with it. The others are only about £120 in total so might just scrape under the wire until the new tax year starts. (I know that doesn't add up to £7K but a couple matured during the year and haven't been reinvested.)

Anyway I'll get there in the end, and I'm so grateful for everyone's input. :T