Civil Service Pension & Tax Code

drummersdale

Hi

My partial retirement started on the 5th August - I have just received confirmation from MyCSP of the amount I will receive per annum and the letter mentions they will apply a provisional tax code to it. Is it worth me speaking to HMRC or simply wait and see how it goes once I receive my first pension “payslip”? My current tax code is 1257L. Don’t know if it makes any difference but Pension will be £23,332 and Salary will be £26,500.

Thanks 

Dazed_and_C0nfused

Pointless speaking to HMRC until the first payment has been reported to them (you can check for it on your Personal Tax Account or simply wait till you have received the payment).

MyCSP will normally use the emergency tax code (1257L) on the first payment on a non cumulative basis and reporting of that payment usually prompts a tax code review.

The updated tax codes will be based on your estimated income from both sources so as your change in earnings won't be apparent to HMRC that is what you will need to advise them of so the codes can be as accurate as possible.  And it's the taxable pay which will you expect to be on your P60 in due course which matters, your salary is irrelevant as you will have been making net pay pension contributions, which reduce your taxable pay.

You can expect to owe tax for this tax year as you will receive two lots of tax code allowances in the pay period you receive your first pension payment.  And you will almost certainly be liable to higher rate tax in this tax year so can expect an additional tax code deduction to ensure the higher rate tax is collected (you won't be higher rate on each source individually so need this deduction to pay the extra tax due).

From April 2023 though you are likely to be on two straightforward tax codes, 1257L at one source and BR at the other.

drummersdale

Thanks @Dazed_and_C0nfused so are the deductions to offset the fact I will have underpaid tax until it eventually settles down in 2023/24 - so effectively a net impact, won’t be better off, won’t be worse off overall from a tax perspective?

Dazed_and_C0nfused

Yes, you will likely have two deductions, one an underpayment because of having two lots of tax code allowances in one tax month and a second called an adjustment to rate band.

The adjustment to rate band is needed where you pay higher rate tax overall but not at one individual source, for example your taxable pay is £40,000 and pension £15,000.  This might be too high to start with as your taxable pay will likely be calculated at your existing rate i.e. based on what has been reported to HMRC so far this tax year but you know it is going to drop significantly going forward so you can provide a more accurate amount based on your payslips to date and expected taxable pay for the rest of the current tax year.

drummersdale

That’s great thanks again @Dazed_and_C0nfused much appreciated 😃

drummersdale

Hi @Dazed_and_C0nfused just received my first pension “payslip” from My CSP and as you suggested they used the tax code 1257L so it looks like a phone call to HMRC might be needed just to get things in order or at least start the ball rolling.

Dazed_and_C0nfused

There may have been new tax codes already calculated but what you then need to do is update your estimated earnings for your employment to the expected P60 taxable pay amount i.e. what you expect to receive in the current tax year taking into account going part time.

You can do this on your Personal Tax Account if you want instead of phoning.

Also check the estimated pension and update that if you think it's wrong (remember it's only the actual part year amount that's needed, not the annual pension amount).

The changes to your annual income are likely to result in more favourable tax code(s) as the first ones calculated will be on the assumption you are earning £50k+ 

drummersdale

Hi @Dazed_and_C0nfused so would that be the gross earnings on my Full Time salary for April through to July then add the gross expected from my Part Time August through to March to get an overall figure for the 12 months?

Dazed_and_C0nfused

drummersdale said:

Hi @Dazed_and_C0nfused so would that be the gross earnings on my Full Time salary for April through to July then add the gross expected from my Part Time August through to March to get an overall figure for the 12 months?

No, it would be your taxable pay for those periods.

Assuming you were in the standard civil service pension scheme so making "net pay" pension contributions i.e. your gross earnings/salary were say £5,000 each month but your taxable pay was only say £4,500 because of your pension contributions.

Your payslips almost certainly show the taxable pay amount each month and the cumulative amount to July or August payday.

drummersdale

Thanks again @Dazed_and_C0nfused very much appreciated!