Tax on state pension

RG2015

Just out of curiosity, am I to blame if the DWP fail to report my state pension to HMRC, and I am late paying income tax.

molerat

Yes, you are responsible for ensuring your tax affairs are in order

When did you receive your first payment ?

"Late" as far as paying tax is concerned has a somewhat elastic timescale.

RG2015

As I say, it is out of curiosity.

My first payment was 6th April, but my company pension and income tax deduction for the end of April is already on my PTA online.

Clearly it is just hypothetical speculation, but when I spoke to HMRC in February, they said DWP would tell HMRC and I did not need to do anything.  

molerat

Just looked through my files.  I reached SPA on 5 Nov and my new tax code letter was dated 25 Nov which was after my pay day for that month - bringing a whole different situation to starting at the beginning of the year and first pension payment was 29 Nov. So 3 weeks would likely still be the timescale as it is an automated process.  Be prepared for a possible chunky tax take next month.

Dazed_and_C0nfused

RG2015 said:

As I say, it is out of curiosity.

My first payment was 6th April, but my company pension and income tax deduction for the end of April is already on my PTA online.

Clearly it is just hypothetical speculation, but when I spoke to HMRC in February, they said DWP would tell HMRC and I did not need to do anything.  

I suspect you are just a bit ahead of the game.

DWP do notify HMRC when State Pension commences but HMRC won't issue a tax code with it included before it actually starts.

I presume DWP only notify HMRC around the time it does start and that an updated tax code will be issued shortly.

JGB1955

I'm not sure that 6th April isn't in the last tax year (from DWP's point of view).  The new (increased payments) start from week beginning 11 April (AIUI).

badmemory

6th is in the new tax year.  Please check what DWP tell HMRC as they are inclined to get it wrong.  Remember that anything earned between 6th & 10th (& earlier) will be paid at the old rate.  DWP are inclined to tell HMRC 52 x new rate.  It might not matter much this year but next year when they give us that massive raise they keep promising it will make a bigger difference.

RG2015

badmemory said:

6th is in the new tax year.  Please check what DWP tell HMRC as they are inclined to get it wrong.  Remember that anything earned between 6th & 10th (& earlier) will be paid at the old rate.  DWP are inclined to tell HMRC 52 x new rate.  It might not matter much this year but next year when they give us that massive raise they keep promising it will make a bigger difference.

I will have untaxed income from 2021/2022. Will HMRC just add this into my new PAYE tax code for 2022/2023?

I guess they will need to split the state pension into 3 sections.

1) Up to and including 5th April 2022, at the old pension rate.
2) 6th April to 10th April 2022, at the old pension rate.
3) 11th April 2022 to 5th April 2023, at the new pension rate.

badmemory

Everything in 1) will be in 21-22 tax yr along with any untaxed income.  What happens there will depend on whether it comes to over £12570.  If there is an amount that is taxable they may well add it to the tax due for the next tax year 22-23.

Items 2) & 3) absolutely correct.

They don't warn you when you retire that you financial affairs are going to get more difficult & I am not referring to a shortage of money.  Money coming in 4 weekly & going out monthly.  Definitely not as straight forward as being paid once a month & DDs going out once a month & add to that your tax affairs not being as straightforward as PAYE.

RG2015

I have another question on the PAYE collection of tax on state pensions.

My company pension is paid monthly whereas my state pension is paid every four weeks.

The full new state pension is £185.15 per week which equates to £9,660.86 per year. (£185.15 / 7 x 365.25 = £9,660.86)

Will they calculate this as follows?

1) Reduce my personal allowance by £9,660.86
2) Reduce my tax code by 967
3) Increase the monthly tax deducted from my state pension by about £161 (£9,660 x 20% /12 = £161)

NB. From my the earlier discussion, this should be further adjusted as follows.

a) The increase in state pension only takes effect from 11th April 2022, so the annual state pension for 2022/2023 needs to be reduced. This will need an adjustment to include 5 days at the old rate of £179.16. I make this to be £3.96

b) A possible adjustment for unpaid tax in 2021/2022.  

Dazed_and_C0nfused

1.  Your Personal Allowance is only reduced if your adjusted net income exceeds £100,000

2.  Your tax code allowances will be reduced by the State Pension amount to be coded in 2022:23

3.  The extra tax will depend on how much your earnings are in relation to your tax code.  If your earnings remain in the basic rate band then £161 would be about right.

a).  Not sure HMRC work like that.  I think it's much more likely to be 1 week at last year's rate and 51 at this year's rate.

b).  Have you been notified of underpaid tax for 2021:22 as part of a 2021:22 tax code?