Tax code anomaly when changing from employee to DB pensioner - was 1288L, now 1257L

itsmeagain

Dazed_and_C0nfused said:

The tax year starts on 6 April.

Month one is 6 April to 5 May and so on so 1 July falls into month 3.

If you were employed and getting a pension at the same time then I don't think either 1257 or 1288 is likely to be correct as they won't reflect the tax you owe.

Can you post the taxable income from each payment on 1 July and what tax code was used?

Having finished employment on the 30th of June, my final VR pay docket, dated 28th July says;
Tax code 1288L
Leav Ann Hol  1,490.85

Redundancy 1 14,909.00

Redundancy 2 30,000.00

Redundancy RTNI 14,726.00
The 3 different Redundancy parts are circa 12 months BASE salary, split into different tax/NIable aspects of the overall VR package, of which the 30K part is tax free.

On 1st Dec, I got my fist pension payslip with £2327 for Dec, plus £11711 arrears (July - Nov inc), tax code 1257L.

I will end up with 3 months pay, 1 month VR pay off, 9 months pension (think this is the overlap you are referring to due to specific date timing), plus 1 year 'equivalent' VR pay of which some is taxbale/NIable.

I have also paid £30k into a SIPP, in addition to the 3 months DB pension I was paying for the 3 months of employment, thus ensuring I'm well below the 40% tax threshold and can get some of the 20% taxed income, back out of the SIPP at effectively only 15% tax. I realise that I will have to claim back the small part that will be taxed at 40% - not of an 'easy' claim back without filling in a SA though?

However my tax code is adjusted to get the correct tax - should it or should it not include the WFH relief?

Dazed_and_C0nfused

On 1st Dec, I got my fist pension payslip with £2327 for Dec, plus £11711 arrears (July - Nov inc), tax code 1257L

You hadn't mentioned the delay so that puts a different complexion on it as you haven't been paid twice in the same month  It's likely just standard pension company procedure to put new pensioners on the emergency tax tax code.

Personally given the additional elements you have now mentioned I would just leave things as they are for the last few months of this tax year and have everything sorted via HMRC's annual calculation process.

https://www.gov.uk/tax-overpayments-and-underpayments

Tax relief on "relief at source" pension contributions is straightforward to sort out, assuming you don't meet any criteria for Self Assessment i.e. HICBC, then you simply need to tell HMRC what the gross contribution you have made under the relief at source method.

This doesn't alter your taxable income but increases the amount of your basic rate band meaning more income can be taxed at 20% and less at 40%.

However my tax code is adjusted to get the correct tax - should it or should it not include the WFH relief?

Possibly.  On what basis were you claiming it?  Normal reason or due to WFH because of Covid-19?

But I really wouldn't get hung up on it, your tax code hasn't been adjusted to remove it, it's just the pension provider has used the default emergency tax code.

It should all get resolved after the year end, unless you are desperate to get everything corrected during the year for some reason?

Marcon

Try https://www.gov.uk/check-income-tax-current-year

sheslookinhot

Have you claimed WFH allowance for tax year 21/22 ?

itsmeagain

Dazed_and_C0nfused said:

On 1st Dec, I got my fist pension payslip with £2327 for Dec, plus £11711 arrears (July - Nov inc), tax code 1257L

You hadn't mentioned the delay so that puts a different complexion on it as you haven't been paid twice in the same month  It's likely just standard pension company procedure to put new pensioners on the emergency tax tax code.

Apologies for any misunderstanding - I did explain in my opening sentence that "I was an employee & active DB member until June this year, took redundancy, since taken early DB pension (all in the same tax year)". Although not explicit, it does imply that I took my DB pension SINCE leaving and not 'on leaving'. It has actually taken several months for the administrators to correct errors and pay out. Even the people that took retirement 'on leaving' had their pension delayed a couple of months after leaving. I understand it is 'normal' for there to be a short gap between leaving and administering a DB pension.

Anyway, would you believe, I got home today to find a letter from HMRC, stating that my tax code has been adjusted from 12882 to 12475 to allow for 407 assumed untaxed interest! The job expenses is still listed (312).

Yes - the WFH relief was due to COVID social distancing at work, with 50% in office, 50% WFH at any time. I applied via a simple link shown on MSE without a SA.

No idea where they have the assumed untaxed interest from, as most my money is in SIPPs & ISA's with only circa 10k other savings at very low interest.

Dazed_and_C0nfused

Banks report interest details to HMRC.

There are usually two reasons why a tax code includes a deduction for untaxed interest.

1.  Tax is payable i.e. both the savings starter rate and savings nil rate (aka Personal Savings Allowance) have been used (or with the savings starter rate it's been reduced to zero)

2.  HMRC's estimate of your earnings/pension income means you have some unused Personal Allowance and the untaxed interest is using those allowances (the savings starter rate only applies once your Personal Allowance has been used and the savings nil rate only applies once the savings starter rate, of available, has been used

From what you have previously posted there clearly aren't any unused Personal Allowances or any savings starter rate band available to you in 2021:22 so the first thing you could do is check your tax code on your Personal Tax Account as that might show some more detail - it may be the interest is £1,407 with £1,000 taxable at 0% (savings nil rate) and £407 deduction in your tax code to collect tax on the bit over £1,000.

Either way if you think the estimate (usually based on the actual figures received from banks for 2020:21) is too high you can provide updated details for each account and HMRC can issue an updated tax code.

Webchat might be the simplest option if you need to do this.

itsmeagain

Dazed_and_C0nfused said:

Banks report interest details to HMRC.

There are usually two reasons why a tax code includes a deduction for untaxed interest.

1.  Tax is payable i.e. both the savings starter rate and savings nil rate (aka Personal Savings Allowance) have been used (or with the savings starter rate it's been reduced to zero)

2.  HMRC's estimate of your earnings/pension income means you have some unused Personal Allowance and the untaxed interest is using those allowances (the savings starter rate only applies once your Personal Allowance has been used and the savings nil rate only applies once the savings starter rate, of available, has been used

From what you have previously posted there clearly aren't any unused Personal Allowances or any savings starter rate band available to you in 2021:22 so the first thing you could do is check your tax code on your Personal Tax Account as that might show some more detail - it may be the interest is £1,407 with £1,000 taxable at 0% (savings nil rate) and £407 deduction in your tax code to collect tax on the bit over £1,000.

Either way if you think the estimate (usually based on the actual figures received from banks for 2020:21) is too high you can provide updated details for each account and HMRC can issue an updated tax code.

Webchat might be the simplest option if you need to do this.

Um... last year I had a circa £900 interest, due to having circa £60k in an old savings account, still paying 1.49%. It was in there waiting to pay off a £60k mortgage being charged at 1.49% (net zero cost). This has since been used to pay off the mortgage (after redemption penalty period ended), so I will not get £900 interest this year.

I wonder if they have looked at the December pension payment (6 months worth in one go), and been presumptuous that I'll get that every month, and become a 40% tax payer, thus only permitted £500 interest free allowance with another £900 interest that I won't actually get this year? I.e, 900int - 500int free = 400 to pay tax on, so subtracted off tax code?

Dazed_and_C0nfused

That could be possible.

You can update your estimated earnings/pension income on your Personal Tax Account and if necessary a new tax code gets issued automatically I think.