Working after retirement

jennifernil

My husband retired a few months ago and has his State Pension plus Company Pension. We are still trying to get the correct tax code sorted out for his pensions as his P45 was lost in the post, but that's another story!

He has been asked to take on occasional work for his previous employer and they will deduct tax as on PAYE. So the first question is, at what rate will they deduct tax?

Then, as this income will probably take him into higher rate tax this year, if not enough tax is deducted am I correct in assuming he needs to send in a Self Assessment return and they will work out how much more he has to pay?

fengirl_2

First of all, as he has gone on to a company pension, he wont receive a P45, so you can stop waiting for it!
As he is a higher rate taxpayer, then the employer will deduct tax at 40% from his pay. He should contact HMRC once he starts this job to make sure they issue the correct code for this. He should then pay the correct tax and not have to self assess at the end of the year.
He should keep an eye on his liability next tax year - if he is back to basic rate tax due to reduced earnings, then he should inform HMRC so they can issue a basic rate code for the job.

jennifernil

Thanks for that. I will need to remember the bit about next year.

He did get sent a P45, the payroll department told us they had sent it, even sent us a photocopy of the first page. The pension is administered by AON, not by the company themselves, and they said we should send them the P45 so they could get a code number for him. As it appears to have been lost he has now filled up a P46, but it will take a while for a code number to be sent out apparently.

He would not be a higher rate tax payer if he does not take on this work, and not all he earns would be liable for 40% tax, only some of it. So if it was all taxed at 40% he would then pay too much.

EdInvestor

If he is over 65 he will get the higher age allowance which may help.

fengirl_2

If he is not liable at 40% on all of the earnings, then he should tell HMRC this so they can adjust his code number to correct the correct amount of tax.
On no account end up with HMRC owing him at the end of the year - better the other way round.

System

EdInvestor wrote: »

If he is over 65 he will get the higher age allowance which may help.

Sorry that's wrong. If his total income from all sources take him into the higher rate bracket then he will not have his age allowance at all.

See http://www.hmrc.gov.uk/rates/it.htm. From this you can see that for every £2 his income is above £20,900 (2006/07) his age allowance reduces by £1 until eventually it reaches £5225 which is the allowances for the under 65's.

To the OP I would suggest your husband completes a P161 http://www.hmrc.gov.uk/forms/p161-man.pdf
this will allow him to let the HMRC know about all his sources of income and sort all his tax codes out for him.

jennifernil

I was under the impression that the pension rules were fairly recently changed to make it OK to take your pension and do work for the same company.

Under the Pension Plan rules he has to take his pension at 65. And as he does not want to do more than the equivalent of maybe 2 months work per year, and only for a couple of years, he decided to claim his State pension too. We do not want to be dependant on him having to work, he will be offered short specialised projects and can accept or reject them as he wishes.

sleepless_saver

As you say, the rules have been changed so that pension schemes can be changed to allow people to collect an occupational pension and work for that employer. BUT it is up to each individual scheme's trustees (or whatever they are called) to decide if they want to change their scheme's rules in this way. So best to check if they have done it in your husband's case.

jennifernil

Yes, they have. The company has several "pensioners" working for it.