state pension and tax

taxed&confused

This is something that has bugged me for sometime.
When my wife and I receive tax statements from HMRC they over state the state pension we actually received within that tax year. This is because as the state pension is paid 4 weekly and in arrears, any pension increase in due from April is not received until much later and the early receipts are at the lower rates. Does any one know the reason for this? HMRC say they use figures provided by the pension service but obviously does not include receipt dates.

Linton

It is stated here that the tax on State Pension is based on when the money is accrued, not when it is paid. So the 4 weeks in arrears is irrelevant. The tax year and the SP year match so there shouldnt be any problem.

badmemory

I agree it does sometimes seem more complicated than it need do. The first year I took my state pension I received 4 weeks in the second week of the new tax year, followed by a bill for unpaid tax for the previous tax year that the first 2 weeks were accrued in. This can be further complicated by the fact that the first week of the new tax year is paid at the old rate & the second week is paid at the new rate so you can't just multiply by 52 (or even 53 some years).

taxed&confused

I had a similar experience as bad memory, Due to my date of birth, name and the pension pay day, it could not have been worse. I only received 6 (4 week payments) but the tax claimed I had 7. It seems out of line that the tax position of the state pension is based on accrual, while every other income is taxed at the date of receipt. But hey ho, the government make the rules, however complicated and inconsistent.

xylophone

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim76005

Payments not made weekly
Claimants can choose to receive some benefits (for example, the State pension) every four or thirteen weeks in arrears, rather than receiving the benefit each week.

Depending on payment dates, an individual who chooses to receive the State pension every 4 weeks in arrears, may receive 14 payments in a year (equivalent to 56 weeks benefit) but for income tax purposes the individual remains taxable to the 52 weeks pension entitlement that arose during the tax year ended on 5 April.

In the following year the individual may receive 12 payments equivalent to only 48 weeks entitlement but the taxable benefit will again be the 52 weeks entitlement.

The correct taxable amount is always the figure of weekly entitlement. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Alexland

Why would someone choose to have the payment delayed and create this additional complexity? Surely the money is better earning interest in their bank account?

badmemory

Alexland wrote: »

Why would someone choose to have the payment delayed and create this additional complexity? Surely the money is better earning interest in their bank account?

Because the choice to be paid weekly is not generally known. Also a lot of us are so accustomed to being paid monthy that another option just doesn't even occur to us.

Alexland

Every time the government give me back money, regardless of the value, it makes me happy. I would take the state pension every 20mins if there was an option and my bank would put up with it!

mgdavid

Alexland wrote: »

Every time the government give me back money, regardless of the value, it makes me happy. I would take the state pension every 20mins if there was an option and my bank would put up with it!

I have better things to do than monitor and track another 26 thousand bank transactions per year...

POPPYOSCAR

badmemory wrote: »

Because the choice to be paid weekly is not generally known. Also a lot of us are so accustomed to being paid monthy that another option just doesn't even occur to us.

Yes the option is not given online.

It was only when the person claiming their pension had to ring to ask where their pension was, for the second time!(they were behind in processing them) and said I wish it was weekly that they told him he could have it paid weekly if he wanted.

Very crafty.

Silvertabby

Why does the option of weekly payment even exist? It must cost DWP (correction, the taxpayer) an unnecessary fortune to fund the extra pay runs - and to what end, as most bills are calendar monthly?

Mr S is due to receive his State pension next year. He will get it every 4 weeks - but even that is a faff. We'd much prefer it to be paid calendar monthly, on the last working day of each month, just like the majority of salaries/pension income.