First year of your State Pension? Check your PAYE code

badmemory

brewerdave wrote: »

...is that in law ???

The worst tax code you can get is a K code. The HMRC website states that the maximum that can be taken is half the income. The other code you get a personal allowance even if it is zero. A K code gives you a minus allowance. This could be a state pension totalling £14K for the year less your personal allowance of £11500 leaves £2500 needing taxing over and above the tax due on your personal pension. That translates to a tax code of 250K. This if applied to a personal pension of £5000 leaves a taxable amount of £7500. K codes are mostly done on a month 1/week 1 basis too, which can help.

Sorry that's a bit garbled!

ETA - just checked Xylophone's link - I should have done that first!

33Lurcher

Missus got an email from HMRC today asking her to check her online tax estimate as it had changed . She deferred her pension in June 2014 and started taking it in June this year (£141 per week) and her tax code changed to 417L paying tax of £206pm (taken from her LA monthly wage ) .

After claiming the extra SP weekly instead of the lump sum her new tax code is K219X , her new state pension after deferring is £185 per week although her online tax account shows HMRC have told her employer an additional £10300 income needs to be taxed (think that figure has some extra state pension back pay in from June when she started the claim)

Does the tax code seem right based on the concerns expressed in the initial post , and can anyone work out what her new monthly tax will be ?

Thanks

badmemory

That's interesting as £10300 income is £198 per week for the full year! So something somewhere is not correct.

The K code (if it wasn't X) would be implying an extra untaxed income of £13690 per annum. Which is over £250 per week. Of course that could be accounted for by the taking of the state pension and the delay in the new tax code being applied. So I think something is not quite right, but what are the dates & what have you in writing. What does the code change notice say? And is her highest rate of tax going to be 20%?

33Lurcher

Thanks for reply , bit of an update , when we checked the online tax account yesterday her new code was K219X and they saiid she owed £244 unpaid tax and had adjusted her code accordingly to repay that this current tax year .
She claimed her pension on 1/6/17 and received 3 weeks SP on 21/6/19 then a full 4 weeks SP on 19/7/17 .
Her tax code was adjusted to 417L in June to reflect this and she paid £206 tax in June & July from her LA monthly wage .
Her next pay day is 15/8/17 and her online tax account records £206 tax paid , doesn't look like her employer received new tax code from HMRC to reflect the extra state pension of £44 per week .
When she received her choices letter from pension Service they incorrectly worked out that she was entitled to £198 per week SP (4 yrs deferral instead of the correct 3 yrs) , the second choices letter a couple of weeks ago showed the correct figure of £185 per week .
Looks like Pension Service have forwarded the original incorrect £198 amount to HMRC hence £10300 shown on her online tax account as extra taxable income .

Today her tax code has changed again to K258X showing unpaid tax of now £492 , her next SP pay date is 16/8/2017 when she should receive £740 (£185 x 4 weeks) plus any extra state pension backdated to 1st June .

She is 20% tax payer

badmemory

Unfortunately, HMRC have another new system which doesn't seem to be working too well. It is recalculating tax due and therefore a new tax code every single day. Luckily only sending a new code to the employer monthly. I suspect that she will have a new tax code every month until the end of this tax year.

The good news is that it should all work out by the end of the year and that next year should be straight forward.

33Lurcher

Thanks for reply , her payslip has just gone online and still shows 417L tax code paying £206 from salary so expect the new tax code K258X to kick in from Sept pay .

SilverE

An update, in case anyone is still following this. DWP are now giving HMRC the correct total first year pension amount, not 12 times the monthly amount. HMRC have recalculated my code w.e.f. December and it is surprisingly accurate in total.


They are still using their new "month 1" basis which collects any underpayment over the remaining months of the year. I have a modest underpayment which they will therefore collect over 4 months (Dec to Mar): on the old basis this would have been spread to March 2018. So there's still room for a fright if there's a large underpayment only discovered in February, they will try to collect it all in March.

badmemory

Fortunately they are only allowed to take 50% of the income in tax. An awful lot but at least not all of it!