Confused

I left work at the end of June (voluntary severance) and took my private pension lump sum and small amount payable monthly. Since July, my income is made up with JSA £212 pm; one pension £112.75pm and the other pension £199.62pm. That's it! total income £523pm approx. I received a pension advice today which states that I have to pay BR tax on it and this will now mean income of £483 pm - not a lot! The £199 pension is to have almost £40 taken off each month in tax. I called IR as I had previously been told I would be on a tax code something like 1060. Their reply was that I will have to pay the £40 pm tax as it is part of the allowance for the year 2015/16. I worked until end of June and assumed (PAYE) that all tax allowances would terminate with my employment and salary. Then a new allowance (1060?) would start. IR insist that I got a tax allowance from April to June and will have to pay the £40 until next April. I am so confused. Surely £40 is too much to pay on less than £500pm earnings (& this will only be this amount while I claim contribution based JSA which may finish in January). Help please - end my confusion!!!

Comments

  • booksurr
    booksurr Posts: 3,700 Forumite
    the following is simplified and is not strictly technically correct but given your lack of understanding it may help you appreciate what is a tax code and how it works (there are plenty of googleable sites that explain such basic facts)

    you get a single allowance per tax year (6th April - 5th April). It is currently worth £10,600 per year hence code 1060. It is applied as a monthly amount, ie £883.33 pcm

    In your case you worked until June so have used £2650 of allowance leaving you with £7,970 for the rest of this tax year

    if you have more than one job in the same tax year and no one of those jobs brings in more than 10,600 for that job then it is your responsibility to ask HMRC to split your code among the organisations who pay you money

    however, specifically in your case ...

    1. JSA is always paid gross without tax deducted so you cannot assign part of your code to the JSA payment as no tax has been deducted from it anyway.

    2. you can ask HMRC to allocate some of your code to pension 1 so that you pay no tax at all on that income. For example, assuming 112.75 is the gross pre tax payment, then that pension is worth £1,353 per year so you ask HMRC to notify that pension provider that the tax code they must use when paying you should be 136 (ie £1,360) so you will pay no tax at all on that pension

    2. do the same on pension 2, ie: 119.62 = £1435.44 pa so code 144 will cover that

    you are therefore left with 1060 - 136 - 144 = 780 (ie £7,800 pa) of remaining tax free income which will more than cover your JSA liability over the course of the year and will result in you not having to pay any tax at all if you continue with that level of income until April 2016.

    Also given you left the job in June you may be due a refund on the tax already paid against that - google the form required to claim that back now.
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