Emergency tax code

Loblob

Hi, can anyone help me with emergency tax codes for SIPPs?

I have had no income this tax year. In December I’m 55 and will start to draw down a SIPP. I want to take an income up to my personal limit this tax year. Does the emergency tax code ‘know’ that there are four months from December to the end of the tax year and will let me take £3142.5 tax free for the four months?

dunstonh

If you take a single payment, it will assume you will earn the same for the remainder of the tax year and overtax you.   If you are taking it monthly then it will resolve itself before the tax year end.   

The system is the same as used for PAYE.

molerat

The emergency tax code is 1257LM1 which takes no account of previous or future income from any source, it is all taxed on a stand alone month payment basis with £1048.26 tax allowance.  Once you have taken one payment HMRC will allocate a code and future withdrawals will have the correct tax deducted accounting for any under / over payment in the first payment. So you can take however much you want with each payment as long as you leave something to take in M12 so the correct total tax for the year can be taken.  If this is your only income you could actually take 4 x £3144.78 = £12579.12 under PAYE.

Loblob

molerat said:

The emergency tax code is 1257LM1 which takes no account of previous or future income from any source, it is all taxed on a stand alone payment basis with £1047 tax allowance.  Once you have taken one payment HMRC will allocate a code and future withdrawals will have the correct tax deducted accounting for any under / over payment in the first payment.

Thanks, so would it be better to take £1047 the first month and more for the next three?

badmemory

I wouldn't trust that your code would be sorted in just one month.  If you can leave the bulk of the withdrawal until March or until you have actual confirmation of the non-M1 code earlier than that, that is what I would do.  But then I am notoriously untrusting.

molerat

The code will normally be allocated within a week, quite often next day.  Whether it will be correct or not is another subject all together.  In my case a code was allocated next day and corrected after contacting HMRC the day after.

dunstonh

Normally, the tax code is sorted before month 2.  Its done electronically between the provider/platforms and HMRC.

Thanks, so would it be better to take £1047 the first month and more for the next three?

No.  Make it the same each month unless you have to one one that is higher.

molerat

Loblob said:

molerat said:

The emergency tax code is 1257LM1 which takes no account of previous or future income from any source, it is all taxed on a stand alone payment basis with £1047 tax allowance.  Once you have taken one payment HMRC will allocate a code and future withdrawals will have the correct tax deducted accounting for any under / over payment in the first payment.

Thanks, so would it be better to take £1047 the first month and more for the next three?

Taking £1048.26 taxable (see my edit) in Dec will mean no tax will be deducted.  If the correct code of 1257L on a cumulative basis is then allocated you will able to take a further £9434.34 in Jan and £1048.26 in Feb and Mar with no tax deducted.  Down to you how you want to take it though, 4 x £3144.78 will work out the same in the end.

Loblob

Many thanks for all the replies. Very helpful!