HMRC Tax Code Change as a result of Pension - do these numbers seem right?

drummersdale

Hi

I took partial retirement on 5th August 2022.  Got my first pension statement from My CSP for which they used the tax code 1257L which I thought was likely to be the case but wrong.  I just spoke to HMRC to give them details of my expected salary for the year and expected pension.  These are £36,731& £15,532- total of £52,263 (both pro-rata against what they would be in a full year of £26,250 & £23,332 respectively - total of £49,582) - they have now allocated a tax code of 727X for the salary element & BRX for the pension for the remainder of the year. However, it states I have underpaid by £376, which I get, but suggest my overall tax for the year will be £8713 whereas last year I paid £7973 on a total salary of £51,363. The lady in HMRC that I spoke to said the underpayment of £376 would be taken out over the remaining part of the year so that I would effectively have paid the correct tax due by the end of it.  Sorry for the long post but do these numbers seem correct?  I know tax doesn’t have to be taxing but I’m afraid I can’t quite get my head around it. 

Thanks 

SouthCoastBoy

I never worry too much if they are correct, I just complete a tax return every year which ensures any anomalies are resolved. Even if you don't fill in a tax return my understanding is the numbers are checked and if a there is an under or over payment the inland revenue will be in touch.

drummersdale

Thanks - I have been PAYE for the last 42 years I don’t think I’ve ever filled in a tax return although I suppose there’s a first time for everything!

DE_612183

If you go to your personal tax account you can see all the salary pension and tax there - then you can use self assessment to work what you should have paid etc and claim back any overpayment

not sure if that is the right way to do it, but it works for me

Dazed_and_C0nfused

drummersdale said:

Thanks - I have been PAYE for the last 42 years I don’t think I’ve ever filled in a tax return although I suppose there’s a first time for everything!

There is absolutely no need whatsoever to complete a Self Assessment return in this situation.

Can you post the cumulative (taxable) pay and tax figures from your latest payslip.

And the same from your pension payslip?

drummersdale

Hi @Dazed_and_C0nfused - cumulative taxable pay (as at end of August) £19052.31 tax paid £2762 - Pension paid £1944.37 tax £179 - Thanks 

molerat

£51363 = £7973 tax

£49582 = £7400 tax

£52263 = £8333 tax

Have you checked your on line tax account and confirm the total expected income from each source is correct.  I suspect it will still be showing as full annual salary from the employment which will put you in the 40% tax bracket.  You can change those amounts yourself - been there, done that and the computer magically changes tax figures and codes.

Tax on £19052 at M5 is correctly £2762

£179 tax on £1944 pension means 1257LM1 code was used, correctly unless they have other instructions from HMRC or new starter form, causing an underpayment of £209.80 tax due to the allowance being used twice that month.

drummersdale

Thanks @molerat that seems correct then my salary for this year will be £36,731 (4 months full & 8 months part time) & £15,532 (8 months pension) - total of £52,263 whereas next years they will be £26,250 & £23,332 respectively - a total of £49,582 - HMRC have now changed my “salary” to £36,731 - which is why she changed my tax code to 727X for the remainder of the year - hopefully it will be more straightforward when I get into a new tax year.  I just wanted to make sure I was paying the right amount overall and it seems from your calculations that I will be. Would I expect to be back on a 1257L code for my “salary” next year and BR for the pension?   Thanks 

german_keeper

Sorry to hijack a bit Drummersdale, but I have a tax code question which Molerat and Dazed may be able to help with. I have been PR since 2019 and finished for good on 1 August. I have received my P45 and my tax account was updated about a week ago. All looks correct but on the first page it still shows my full PT annual salary. When I click through though it does say "This employer told us how much you were paid up to 1 August 2022 when your employment with them ended," and those figures are also correct.

I will not be starting drawdown of my DC pension till next April in order to secure a nice tax rebate. But the tax code on my Civil Service pension still shows as BR. Does anyone know if that code will automatically be revised in due course, or is it up to me to phone HMRC and confirm my situation. You wouldn't think I used to work for HMRC would you??

Dazed_and_C0nfused

german_keeper said:

Sorry to hijack a bit Drummersdale, but I have a tax code question which Molerat and Dazed may be able to help with. I have been PR since 2019 and finished for good on 1 August. I have received my P45 and my tax account was updated about a week ago. All looks correct but on the first page it still shows my full PT annual salary. When I click through though it does say "This employer told us how much you were paid up to 1 August 2022 when your employment with them ended," and those figures are also correct.

I will not be starting drawdown of my DC pension till next April in order to secure a nice tax rebate. But the tax code on my Civil Service pension still shows as BR. Does anyone know if that code will automatically be revised in due course, or is it up to me to phone HMRC and confirm my situation. You wouldn't think I used to work for HMRC would you??

It will be revised at some point but if your only (PAYE) income between now and the end of the tax year is your civil service pension then you could ask for that to have your tax code allowances allocated to it.

That would of course normally stop you getting a "nice tax rebate" next year as you will receive it bit by bit each month as part of your civil service pension.

Unless you insist on a non cumulatibe code of course.