Tax on pension withdrawal

cjking

I have a similar tax return. What you should see on your detailed tax return calculation is "£9000" next to "UK Pensions and state benefits", which will feed into the calculation of your total taxable income. Then in the section where they work out your tax, "How we have worked out your tax", the 9000 will correctly be included in the section "Pay, Pensions, Profit etc" when calculating your overall tax bill. Later on you will get an "Income tax due", this will include any tax due on the £9000 pension income. Then after that there is a section "minus tax deducted" subsection "From all employments, UK Pensions and state benefits", this section represents tax you have already paid, and should include the £1800. The tax already paid is deducted from the tax you owe to give a remaining figure "Total income tax due", which is what you actually have to pay.

Essentially the fact that you've already had tax deducted makes no difference for most of the tax calculation, it's only right at the end when they've already calculated tax as if no deductions have taken place that they then take tax already paid off the total owed. 

I had income from salary, pension and property funds, all of which had tax deducted at source, and it's the full amount ignoring deductions that is used to calculate my tax bill, and only then do they reduce my bill by what I've already paid.

cjking

PAYE and other methods of deducting tax at source are just administrative processes to collect approximately the right amount of tax. The actual tax you owe will only be computed when you do your tax return and might well turn out to be more or less than has already be deducted, because of the way your tax codes are allocated, or because combined income takes you into a higher rate band, or for other reasons. The fact that tax has already been deducted is largely irrelevant in computing your tax via self-assessment, which calculates tax on your income before tax, and then afterwards deducts what you've already pre-paid by deduction at source from the overall amount owed.

cjking

Your post is confusing, if £1800 was paid to HMRC then you would have received £7200, not £9000. If you received £9000, then the £1800 tax was not actually deducted and sent to HMRC, and would be owed under your tax return. I guess this could happen if £9000 of you tax code was allocated to your pension and you were taxed in the last month of the year.

cjking

If you are copying figures of £9000 and £1800 from your pension P60 to your tax return, and you bank statement says you received £9000 from Hargreaves, then Hargreaves have screwed something up. They've generated a P60 saying money has been paid to HMRC when in fact nothing has been paid. This seems fairly unlikely, so I'm assuming you actually received £7200.

bostonerimus

Let's ignore the 3k TFLS.

So did you receive 9k taxable income or 7.2k after the 1.8k tax was withheld?

When you do a self assessment you will add up all your taxable income and then you'll find out the tax that you owe and if the 1.8k has already been withheld that should be a credit against you tax owed.