Incorrect tax code allocated

joesig

I recently retired at end of April 2022 and knowing I would not be receiving any benefits from my previous employer, I expected my tax code to be the standard Personal Allowance amount. I have since received 3 tax code notices with the latest much lower than £12570, saying that HMRC estimates I will owe them an amount of tax for this year. I have checked on the Inland Revenue online site and I can see and confirm all the details of payments from my previous employer as well as my pension payments, so can figure out how much tax I should be expected to pay this tax year. For some reason HMRC estimates I should be paying over £500 more, even though I have already paid an amount in tax that is nearly equivalent to the total expected for the year. I have contacted HMRC and explained my argument, the person I spoke to understood and agreed, but said the system was unable to make an adjustment and I would have to wait until the end of the tax year when it would correct itself and a refund provided. I am really baffled by this as all it would take is a correction to my tax code (just as they have done to claw back what they ESTIMATE I will owe them) and my tax payment will fall into line. Am I being too simplistic or is this another case of taking money off people first (even though it isn't actually owed), and then handing it back sometime later.      

Dazed_and_C0nfused

If what you say is true you clearly got someone who doesn't understand PAYE or how HMRC's systems work.

Clear facts are always a good start so have you been paid by one employer in this tax year?

If so do you have the P45 details?

What was your tax code at the start of the current tax year?

Did you get any benefits in kind from this employer?  Company car, medical insurance etc.

Do you just have one pension in this tax year?

If so do you have the cumulative pay and tax deducted figures (just for this pension) for this tax year?

When do you expect your next pension payment to be made?  The specific date.

joesig

I have been paid by one employer and also received my monthly pension payments. The employer's pay was for just 1 month until my retirement at end of April and I do have the P45 details.

My tax code at the start of this tax year was 1150L. It did take account of an amount for medical insurance which I asked HMRC to remove as I am not in receipt of this benefit in the current tax year. My latest tax code notice shows the medical insurance benefit has been removed, but then my tax allowance has been reduced to take account of the tax HMRC estimate I will owe them. My latest tax code is 1045L. 

I only have one pension. The tax code used was 1150L and is likely to change at next payment on 28th August.

The pay from my employer included holiday pay and a bonus, so incurred tax at 40%. When adding my forecast pension and employer pay for this tax year, the amount will just take me over into the 40% threshold, so what I paid 40% tax on from my April pay is more than the amount that will be over the threshold at the end of the tax year. 

All the details showing on the HMRC online site regarding pay from my employer and pension payments are correct. They also show a breakdown of the taxable income, which I agree as correct, then they show a figure for the estimated tax they believe I owe (this year) - I am assuming this is not for tax underpaid from the prior year.

Dazed_and_C0nfused

You will need to provide some figures for a definitive answer but one possible explanation is that an underpayment was estimated because, for tax purposes, you had a job and pension at the same time.

What was the date of your first pension payment and was the emergency tax code (1257L) used against this?

Roughly how much is your monthly pension payment (the gross taxable amount)?

sheslookinhot

joesig said:

I have been paid by one employer and also received my monthly pension payments. The employer's pay was for just 1 month until my retirement at end of April and I do have the P45 details.

My tax code at the start of this tax year was 1150L. It did take account of an amount for medical insurance which I asked HMRC to remove as I am not in receipt of this benefit in the current tax year. My latest tax code notice shows the medical insurance benefit has been removed, but then my tax allowance has been reduced to take account of the tax HMRC estimate I will owe them. My latest tax code is 1045L. 

I only have one pension. The tax code used was 1150L and is likely to change at next payment on 28th August.

The pay from my employer included holiday pay and a bonus, so incurred tax at 40%. When adding my forecast pension and employer pay for this tax year, the amount will just take me over into the 40% threshold, so what I paid 40% tax on from my April pay is more than the amount that will be over the threshold at the end of the tax year. 

All the details showing on the HMRC online site regarding pay from my employer and pension payments are correct. They also show a breakdown of the taxable income, which I agree as correct, then they show a figure for the estimated tax they believe I owe (this year) - I am assuming this is not for tax underpaid from the prior year.

Perhaps HMRC are still forecasting your annual salary based on April salary. I retired May 22 after being part time and HMRC, although they know I have retired, still have an annual income forecast greater than £50k.

joesig

I received a pension payment for April, so in that month I would have received pay from my employer as well as my pension. The tax code used for my pension was 1150L and I believe the tax deducted from my pension was at 20%, so maybe they see this as the underpayment which should have been at 40%. 

My frustration is that over the next eight months my total income will not have continued at the same rate as April's and if HMRC do not adjust my tax payments, I will have paid way more tax by March 2023 than I should be due to pay. My latest tax code notice now shows it to be 1037LX. Just as they keep changing it for some reason, why can't they change it when it becomes apparent that I am paying more tax than I need to? 

Dazed_and_C0nfused

Nothing you have posted actually shows you are paying more tax than you should be.

If you post your P45 details and the taxable pension from your latest (pension) payslip along with the tax deducted from the pension payslip and confirm how much pension you expect to be paid each month for the rest of the current tax year (and when the next payment will be) then it should be possible to check in more detail.

The breakdown of the current tax code would also be needed 

Do you know how the pension company managed to get tax code 1150L for the first payment 🤔

sheramber

Did you receive your last salary payment and forst pension payment in the same month?

Dazed_and_C0nfused

It does very much seem like it,

I received a pension payment for April, so in that month I would have received pay from my employer as well as my pension. 

sheramber

So Dazed_and_C0nfused said:

It does very much seem like it,

I received a pension payment for April, so in that month I would have received pay from my employer as well as my pension. 

Yes, it does but the OP says his pension was taxed on code 1150, so was  that code used twice for April- by the employer and by pension company hence the estimated underpayment.

joesig

Yes the same tax code was used by employer and pension company, and I also think this is why they have estimated underpayment. I was hoping that as the months go by my tax would correct itself as it becomes apparent that unless my payments are reduced, I will be overpaying tax. Thanks to everyone else for your comments.