Does work pension lump sum count as annual income?

tarves57

I'm taking my work pension mid December (I'm 60) but because I didn't take any holidays this year due to covering for a longterm sick colleague, I can actually stop working end October, but still get paid for November and half December. However, the pay office has paid me for October, November and half December altogether in one pay packet and knocked me over some threshold which means I've paid a humungous amount of tax and NI that I wouldn't normally.

HMRC says I can claim back overpaid tax at end of tax year, but in the meantime, in December, I will get the lump sum from my work pension and £300 per month thereafter. My question is, if I try to claim back the overpaid tax, will my lump sum count as income? (Thereby negating any chance of me getting any tax back?)

And can I claim for overpayment of National Insurance?

I normally pay £20 tax per month, but getting paid for October, November and half December all together in one pay packet, I've been taxed a whopping £330!! Might not be a lot for some folk, but I will be struggling to get by for the next 3 months.

greenglide

And can I claim for overpayment of National Insurance?

Generally you can't. There would not actually appear to have been an overpayment, the employer has simply been "good enough" to have paid you in lieu of holidays. If it was a genuine error the only way of fixing it is if the employer processed an adjustment to cancel the payment.

Have you got your P45 yet? If so you can give it to the pension provider and the tax would sort itself out.

Linton

A pension lump sum does not count as taxable income - I assume you are talkng about the lump sum from a DB pension.

tarves57

Thanks, however I've not been paid in lieu of holidays, I am officially still an employee till mid December, but because I had lots of holidays still to take, I don't have to go back into work. I won't get a P45 till after December.

I will have earned less than £11,000 by the end of the tax year and should be refunded all the tax I have paid, unless the lump sum I get from my work pension is considered part of my income. Or would that come under the category of "savings" as it's tax free?

My problem is, that if I had forfeited my holidays and worked up till mid December, getting paid monthly as usual, I would only have paid £20 a month in tax and £55 a month in NI. So I am hopping mad that because I got all two and a half months' wages in one pay packet I've been charged £330 tax and £280 National Insurance.

That's a whole lot of money for me and when I phoned my work's pay office she had the cheek to say "well, you'll get your pension won't you" , so thinking that when I apply for a tax rebate, HMRC will say to me "well you got your pension lump sum didn't you, why should we give you a tax rebate". I'll be getting (and living on) £300 a month after December. I've set myself the challenge, and it will be!

tarves57

Ah thanks Linton, that's really what I needed to know.

Thanks Greenglide for information on NI, it's a shame I couldn't reclaim that too, it's nearly £130 over what I would normally pay.

molerat

The pension lump sum is tax free. Will the pension be your main source of income ? As soon as you get your P45 send it to your pension payer and they will refund you any tax overpaid through the PAYE system.

sheramber

Your pension payment of £300 is income and is added to your income up until December so your income for the year is not £11000.

kidmugsy

sheramber wrote: »

Your pension payment of £300 is income and is added to your income up until December so your income for the year is not £11000.

He'd said that he won't be getting the £300 p.m. until mid-December

xylophone

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

tarves57

Thanks everyone. I just wish our pay office would get it right first time for a change instead of having to fight to get paid what I'm due.

Ok, by the looks of it I'll get the extra tax back after March, but I'll be about £450 short of what I'm due in wages till the end of the year, then subsisting on £300 a month till I get my old age pension in 6 years. The low pension doesn't bother me, I see it as a challenge, but being sold short on wages after "doing them a favour" by not taking my holidays and doing my colleague's work as well as my own when she was off sick all summer......... well, it's always the way, isn't it.

Dazed_and_confused

Not sure why you think you'll have to wait until after March for any tax refund due

As others have explained you need to give your P45 to the pension payer and they will then be able to calculate the correct tax due each time they pay you and include any tax refund with your pension payment.

You will also need to be on a cumulative rather than emergency tax code basis when your P45 is issued.