Retired and taxed

magicman62

Hi, I don't understand income tax, but it complicated so I will try to keep this as short as possible
For the last 4 years I have did not earn above the tax threshold hence little or no tax and got a rebate when I did pay 
I retired 4 weeks ago and soon afterwards I got a letter saying I owed  £400 tax I contacted them and it was a mistake as they were unaware I had retired and had not amended my tax code so I was being taxed on both pension and predicted wages..it was corrected I was told I was not in the tax bracket to pay tax and got a refund for what had already been paid..Yesterday  I received my pension MINUS £70 tax they say it is correct, but I am still below the tax threshold, I am now paying more tax on a lower income than when I am working...i contacted them but they insist it is right as they have added my last 3 months wages to my tax year and it would self correct...but I cannot afford to be paying £70 a month out of my pension I will speak to them again but does this sound correct..ps my total income is approx 11500k...many thanks

Dazed_and_C0nfused

It probably is correct, you just aren't understanding how tax works and what will happen in future months.

Can you post the pay and tax figures from your P45 and the (taxable) amount the pension company has paid you. 

And the tax they have deducted (exactly £70?).

And the date your latest pension payment was made.

And the date your next pension payment will be made.

And the tax code on your latest pension payment.

magicman62

Hi as requested

  My state Pension is £185.15 weekly  ( although 1st monthly payment was 714.15)

Private pension 1 figures  from P60 was £1686 no tax paid ytd april  22 ..tax code 208L

Private pension 2 figures from P60 was £435.16 tax paid £1.20 Tax code 42T

Last Employment  figures taken from last P45, In this tax year £2718.29 Tax paid £39.00 Tax code 936T on leaving date

First state pension paid 29/07/22 £714

Private Pension 1 current figures Annual pension £1761.72 Tax code 449L

Paid  31/08/22 Gross £146.81..Tax £73.40...Net£73.41

Addition figures on my pension No 1 payslip total pay to date £3,305.24Tax to dat £112.40..Previous employer Gross pay £2,718.00 Tax £39.00

I hope these figures help , I have argued at lengh with the inland revenue and keep getting different explanations ..the last reason was as I am getting a state pension it is income and cannot be collected from source so they take it from my private pension , the fact is I now get less since retiring and pay more tax even though I am below the tax threshold I was told  it is what it is ...Surely this cannot be correct I am so confused ...

Dazed_and_C0nfused

It is correct, you have misunderstood how PAYE works.

Your payslip details for August are available well in advance but they show that by that point (month 5 of the tax year) your income to be taken into account at that source is £3,305.

That equates to annual income of £7,932 which is more than your tax code allowances of 4499 (tax code 449L).

By month 5 you should have a fully paid £286 but your pension company is only allowed to deduct a maximum of 50% tax hence the £73.40.

Move things on a month to end of September and assuming your pension is another £146.81 you will a total of £3,452.  At month 6 the tax due would be £240 so they would deduct another £73.40, making a total of £185.89

At the end of October (month 7) the total will be £3,598 and the tax due £195 so they will only need to deduct about £9.

At the end of November (month 9) you will start getting some of the tax refunded with your pension as your pension that month (£146.81) will be less than than your tax code allowances that month (£374.91)

And that will continue each month until March when you should have paid around £4 in tax.

Paid 31/08/22 Gross £146.81..Tax £73.40...Net£73.41

Addition figures on my pension No 1 payslip total pay to date £3,305.24
Tax to dat £112.40..
Previous employer Gross pay £2,718.00 Tax £39.00

magicman62

Thanks, I still don't fully understand, Lol but what I saw was tax threshold about 1250 k and having a total income less = no tax so it doesn't make sense to pay then get it back  I still cannot understand why I have such a low tax threshold though . .what will happen next year! ? I won't have those previous wages to take into account. Thanks  for your input it makes a little sense to me ...looks like I will have to wait a few months .

sheramber

But you only get 1/12  of the personal allowance each month.

if your taxable income to date is more than the amount of personal allowance available up to that month then tax is payable.

Once you taxable income to date falls below the cumulative personal allowance available for the month then no tax will be due and any tax overpaid will be refunded.

Your PAYE works on a monthly basis not an annual one.

magicman62

I would much rather have the money in my pocket now lol  .not in the governments coffers £70 is a weeks shopping 2 weeks diesel or worse still 2 weeks gas / electric so I need every penny I can get lol

Dazed_and_C0nfused

But your taxable income is slightly above your Personal Allowance.

Job £2,718
Pension 1 £1,761
Pension 2 £435 

All total £4.914

So if your State Pension in this tax year is at more than £7,656 (41 or so weeks) then your taxable income is greater than your Personal Allowance.

And as things stand it will be over the Personal Allowance next year, using reasonable estimates of your pension increases,

Pension 1 £1,840
Pension 2 £455
State Pension £10,500

Total pension income = £12,795

magicman62

I still thought that the tax threshold was 12,500, so why have they told me mine is less, I have no savings no insurance no additional incomes and no job

magicman62

My job finished on July 1st

Dazed_and_C0nfused

Your threshold isn't less but State Pension is taxable income and DWP don't deduct tax like a pension payer or employer can so that reduces your tax code allowances to make sure you pay the correct amount of tax overall.