HMRC taking too much tax on ad hoc pension drawdown - anyone else experienced this?

Dazed_and_C0nfused

zagfles said:

Pat38493 said:

badmemory said:

I agree with zagfles there must be an X or M1 in your code.  I thought I had misunderstood something but that is the only thing which would account for it not being self correcting.  You do need to check your account with HMRC & see what they say & then compare it with your providers account & make sure they do actually agree.  It is not unheard of for a company to use an incorrect code despite what they receive from HMRC & it is also not unheard of for HMRC to send info which is difficult for the company to tie up to a client.

OP quoted their tax codes in their second post on the first page but no harm in checking again I guess.  There was no M1 or W1 or X.  In second post OP clarified 2 pensions - one has an L tax code and one a T tax code.  According to HMRC website T means "HMRC needs to review some items with employee".

Also fixing the tax codes won't help the OP in current tax year as too much tax has already been deducted and even if charged zero by PAYE in Feb and March HMRC will still owe money back to OP.  This is probably the reason why HMRC said they can't fix it in the current year.

Also OP has not told us what tax was charged in December so we don't know for sure that the system didn't attempt to start correcting something.

Yes it will. Get a cumulative tax code in time for the last payday before the end of the tax year and refund will be paid in PAYE.

If that is the cause of the problem then it would rely on the op also asking for a further pension payment, even if only £1, as the pension payer wouldn't necessarily run payroll every month of no payments are taken.

zagfles

Dazed_and_C0nfused said:

zagfles said:

Pat38493 said:

badmemory said:

I agree with zagfles there must be an X or M1 in your code.  I thought I had misunderstood something but that is the only thing which would account for it not being self correcting.  You do need to check your account with HMRC & see what they say & then compare it with your providers account & make sure they do actually agree.  It is not unheard of for a company to use an incorrect code despite what they receive from HMRC & it is also not unheard of for HMRC to send info which is difficult for the company to tie up to a client.

OP quoted their tax codes in their second post on the first page but no harm in checking again I guess.  There was no M1 or W1 or X.  In second post OP clarified 2 pensions - one has an L tax code and one a T tax code.  According to HMRC website T means "HMRC needs to review some items with employee".

Also fixing the tax codes won't help the OP in current tax year as too much tax has already been deducted and even if charged zero by PAYE in Feb and March HMRC will still owe money back to OP.  This is probably the reason why HMRC said they can't fix it in the current year.

Also OP has not told us what tax was charged in December so we don't know for sure that the system didn't attempt to start correcting something.

Yes it will. Get a cumulative tax code in time for the last payday before the end of the tax year and refund will be paid in PAYE.

If that is the cause of the problem then it would rely on the op also asking for a further pension payment, even if only £1, as the pension payer wouldn't necessarily run payroll every month of no payments are taken.

Yes, but OP gets a regular payment of £1333 a month as stated earlier.

Dazed_and_C0nfused

zagfles said:

Dazed_and_C0nfused said:

zagfles said:

Pat38493 said:

badmemory said:

I agree with zagfles there must be an X or M1 in your code.  I thought I had misunderstood something but that is the only thing which would account for it not being self correcting.  You do need to check your account with HMRC & see what they say & then compare it with your providers account & make sure they do actually agree.  It is not unheard of for a company to use an incorrect code despite what they receive from HMRC & it is also not unheard of for HMRC to send info which is difficult for the company to tie up to a client.

OP quoted their tax codes in their second post on the first page but no harm in checking again I guess.  There was no M1 or W1 or X.  In second post OP clarified 2 pensions - one has an L tax code and one a T tax code.  According to HMRC website T means "HMRC needs to review some items with employee".

Also fixing the tax codes won't help the OP in current tax year as too much tax has already been deducted and even if charged zero by PAYE in Feb and March HMRC will still owe money back to OP.  This is probably the reason why HMRC said they can't fix it in the current year.

Also OP has not told us what tax was charged in December so we don't know for sure that the system didn't attempt to start correcting something.

Yes it will. Get a cumulative tax code in time for the last payday before the end of the tax year and refund will be paid in PAYE.

If that is the cause of the problem then it would rely on the op also asking for a further pension payment, even if only £1, as the pension payer wouldn't necessarily run payroll every month of no payments are taken.

Yes, but OP gets a regular payment of £1333 a month as stated earlier.

Good point 🙄

Pat38493

zagfles said:

Pat38493 said:

badmemory said:

I agree with zagfles there must be an X or M1 in your code.  I thought I had misunderstood something but that is the only thing which would account for it not being self correcting.  You do need to check your account with HMRC & see what they say & then compare it with your providers account & make sure they do actually agree.  It is not unheard of for a company to use an incorrect code despite what they receive from HMRC & it is also not unheard of for HMRC to send info which is difficult for the company to tie up to a client.

OP quoted their tax codes in their second post on the first page but no harm in checking again I guess.  There was no M1 or W1 or X.  In second post OP clarified 2 pensions - one has an L tax code and one a T tax code.  According to HMRC website T means "HMRC needs to review some items with employee".

Also fixing the tax codes won't help the OP in current tax year as too much tax has already been deducted and even if charged zero by PAYE in Feb and March HMRC will still owe money back to OP.  This is probably the reason why HMRC said they can't fix it in the current year.

Also OP has not told us what tax was charged in December so we don't know for sure that the system didn't attempt to start correcting something.

Yes it will. Get a cumulative tax code in time for the last payday before the end of the tax year and refund will be paid in PAYE.

OK but if that's possible then why didn't HMRC suggest this to the OP in the first place?  Also if it's that easy why are there always so many posts on here about having to claim tax back directly from HMRC?

I was not aware that companies or pension schemes can actually provide a tax refund (as opposed to reducing the tax on the next period to zero if needed) through the payroll system.  In fact I am sure my company payroll person told me they could not do this in the past.... (maybe it's a function of the payroll system being used).

That refund is part of the payment to the employee form the employer or pension scheme, so then how does the pension scheme get the money back from HMRC if they've already handed it over to HMRC?

molerat

Pat38493 said:

zagfles said:

Pat38493 said:

badmemory said:

I agree with zagfles there must be an X or M1 in your code.  I thought I had misunderstood something but that is the only thing which would account for it not being self correcting.  You do need to check your account with HMRC & see what they say & then compare it with your providers account & make sure they do actually agree.  It is not unheard of for a company to use an incorrect code despite what they receive from HMRC & it is also not unheard of for HMRC to send info which is difficult for the company to tie up to a client.

OP quoted their tax codes in their second post on the first page but no harm in checking again I guess.  There was no M1 or W1 or X.  In second post OP clarified 2 pensions - one has an L tax code and one a T tax code.  According to HMRC website T means "HMRC needs to review some items with employee".

Also fixing the tax codes won't help the OP in current tax year as too much tax has already been deducted and even if charged zero by PAYE in Feb and March HMRC will still owe money back to OP.  This is probably the reason why HMRC said they can't fix it in the current year.

Also OP has not told us what tax was charged in December so we don't know for sure that the system didn't attempt to start correcting something.

Yes it will. Get a cumulative tax code in time for the last payday before the end of the tax year and refund will be paid in PAYE.

OK but if that's possible then why didn't HMRC suggest this to the OP in the first place?  Also if it's that easy why are there always so many posts on here about having to claim tax back directly from HMRC?

I was not aware that companies or pension schemes can actually provide a tax refund (as opposed to reducing the tax on the next period to zero if needed) through the payroll system.  In fact I am sure my company payroll person told me they could not do this in the past.... (maybe it's a function of the payroll system being used).

That refund is part of the payment to the employee form the employer or pension scheme, so then how does the pension scheme get the money back from HMRC if they've already handed it over to HMRC?

Companies deduct whatever tax the system tells them to, it can be a negative amount so in effect a refund as long as that is what is due at that point YTD.  The system then tells them how much to send to HMRC in total across their whole payroll, it would be most unusual (pretty much impossible) for a negative amount in total.

Claiming refunds is usually due to having a single payment in a year so no avenue to correct it in PAYE such as in the first UFPLS where there is no tax code allocated which is easily bypassed by taking a small payment and waiting for a tax code to be allocated.

Pat38493

molerat said:

Pat38493 said:

zagfles said:

Pat38493 said:

badmemory said:

I agree with zagfles there must be an X or M1 in your code.  I thought I had misunderstood something but that is the only thing which would account for it not being self correcting.  You do need to check your account with HMRC & see what they say & then compare it with your providers account & make sure they do actually agree.  It is not unheard of for a company to use an incorrect code despite what they receive from HMRC & it is also not unheard of for HMRC to send info which is difficult for the company to tie up to a client.

OP quoted their tax codes in their second post on the first page but no harm in checking again I guess.  There was no M1 or W1 or X.  In second post OP clarified 2 pensions - one has an L tax code and one a T tax code.  According to HMRC website T means "HMRC needs to review some items with employee".

Also fixing the tax codes won't help the OP in current tax year as too much tax has already been deducted and even if charged zero by PAYE in Feb and March HMRC will still owe money back to OP.  This is probably the reason why HMRC said they can't fix it in the current year.

Also OP has not told us what tax was charged in December so we don't know for sure that the system didn't attempt to start correcting something.

Yes it will. Get a cumulative tax code in time for the last payday before the end of the tax year and refund will be paid in PAYE.

OK but if that's possible then why didn't HMRC suggest this to the OP in the first place?  Also if it's that easy why are there always so many posts on here about having to claim tax back directly from HMRC?

I was not aware that companies or pension schemes can actually provide a tax refund (as opposed to reducing the tax on the next period to zero if needed) through the payroll system.  In fact I am sure my company payroll person told me they could not do this in the past.... (maybe it's a function of the payroll system being used).

That refund is part of the payment to the employee form the employer or pension scheme, so then how does the pension scheme get the money back from HMRC if they've already handed it over to HMRC?

Companies deduct whatever tax the system tells them to, it can be a negative amount so in effect a refund as long as that is what is due at that point YTD.  The system then tells them how much to send to HMRC in total across their whole payroll, it would be most unusual (pretty much impossible) for a negative amount in total.

Claiming refunds is usually due to having a single payment in a year so no avenue to correct it in PAYE such as in the first UFPLS where there is no tax code allocated which is easily bypassed by taking a small payment and waiting for a tax code to be allocated.

OK - I stand corrected (again!) but I guess it still leaves the question why HMRC didn't just do this when OP contacted them first time around.

Also there is the mystery of why OP reported tax codes L and T which I think are both supposed to be cumulative.

Dazed_and_C0nfused

Pat38493 said:

molerat said:

Pat38493 said:

zagfles said:

Pat38493 said:

badmemory said:

I agree with zagfles there must be an X or M1 in your code.  I thought I had misunderstood something but that is the only thing which would account for it not being self correcting.  You do need to check your account with HMRC & see what they say & then compare it with your providers account & make sure they do actually agree.  It is not unheard of for a company to use an incorrect code despite what they receive from HMRC & it is also not unheard of for HMRC to send info which is difficult for the company to tie up to a client.

OP quoted their tax codes in their second post on the first page but no harm in checking again I guess.  There was no M1 or W1 or X.  In second post OP clarified 2 pensions - one has an L tax code and one a T tax code.  According to HMRC website T means "HMRC needs to review some items with employee".

Also fixing the tax codes won't help the OP in current tax year as too much tax has already been deducted and even if charged zero by PAYE in Feb and March HMRC will still owe money back to OP.  This is probably the reason why HMRC said they can't fix it in the current year.

Also OP has not told us what tax was charged in December so we don't know for sure that the system didn't attempt to start correcting something.

Yes it will. Get a cumulative tax code in time for the last payday before the end of the tax year and refund will be paid in PAYE.

OK but if that's possible then why didn't HMRC suggest this to the OP in the first place?  Also if it's that easy why are there always so many posts on here about having to claim tax back directly from HMRC?

I was not aware that companies or pension schemes can actually provide a tax refund (as opposed to reducing the tax on the next period to zero if needed) through the payroll system.  In fact I am sure my company payroll person told me they could not do this in the past.... (maybe it's a function of the payroll system being used).

That refund is part of the payment to the employee form the employer or pension scheme, so then how does the pension scheme get the money back from HMRC if they've already handed it over to HMRC?

Companies deduct whatever tax the system tells them to, it can be a negative amount so in effect a refund as long as that is what is due at that point YTD.  The system then tells them how much to send to HMRC in total across their whole payroll, it would be most unusual (pretty much impossible) for a negative amount in total.

Claiming refunds is usually due to having a single payment in a year so no avenue to correct it in PAYE such as in the first UFPLS where there is no tax code allocated which is easily bypassed by taking a small payment and waiting for a tax code to be allocated.

OK - I stand corrected (again!) but I guess it still leaves the question why HMRC didn't just do this when OP contacted them first time around.

Also there is the mystery of why OP reported tax codes L and T which I think are both supposed to be cumulative.

They can both be cumulative and non cumulative.

There seems to be some misunderstandings about T codes.  There is nothing at all unusual about them, they are often used for second sources of PAYE income and using a T suffix avoids a lot of complications (and paper) at the start of the new tax year.

In normal times when the Personal Allowance increases each year employers and pension payers are told to update L codes by a fixed amount so they give the benefit of the extra Personal Allowance without having to be sent a tax code for each individual person.

For example the current emergency tax code is 1257L.  If the Personal Allowance changed to £13,000 it would become 1300L and employers would be told to increase all L codes by 43 points.

If the codes for second jobs/pensions also had an L suffix people would start getting multiple lots of the extra Personal Allowance chasing chaos!

Pat38493

Dazed_and_C0nfused said:

Pat38493 said:

molerat said:

Pat38493 said:

zagfles said:

Pat38493 said:

badmemory said:

I agree with zagfles there must be an X or M1 in your code.  I thought I had misunderstood something but that is the only thing which would account for it not being self correcting.  You do need to check your account with HMRC & see what they say & then compare it with your providers account & make sure they do actually agree.  It is not unheard of for a company to use an incorrect code despite what they receive from HMRC & it is also not unheard of for HMRC to send info which is difficult for the company to tie up to a client.

OP quoted their tax codes in their second post on the first page but no harm in checking again I guess.  There was no M1 or W1 or X.  In second post OP clarified 2 pensions - one has an L tax code and one a T tax code.  According to HMRC website T means "HMRC needs to review some items with employee".

Also fixing the tax codes won't help the OP in current tax year as too much tax has already been deducted and even if charged zero by PAYE in Feb and March HMRC will still owe money back to OP.  This is probably the reason why HMRC said they can't fix it in the current year.

Also OP has not told us what tax was charged in December so we don't know for sure that the system didn't attempt to start correcting something.

Yes it will. Get a cumulative tax code in time for the last payday before the end of the tax year and refund will be paid in PAYE.

OK but if that's possible then why didn't HMRC suggest this to the OP in the first place?  Also if it's that easy why are there always so many posts on here about having to claim tax back directly from HMRC?

I was not aware that companies or pension schemes can actually provide a tax refund (as opposed to reducing the tax on the next period to zero if needed) through the payroll system.  In fact I am sure my company payroll person told me they could not do this in the past.... (maybe it's a function of the payroll system being used).

That refund is part of the payment to the employee form the employer or pension scheme, so then how does the pension scheme get the money back from HMRC if they've already handed it over to HMRC?

Companies deduct whatever tax the system tells them to, it can be a negative amount so in effect a refund as long as that is what is due at that point YTD.  The system then tells them how much to send to HMRC in total across their whole payroll, it would be most unusual (pretty much impossible) for a negative amount in total.

Claiming refunds is usually due to having a single payment in a year so no avenue to correct it in PAYE such as in the first UFPLS where there is no tax code allocated which is easily bypassed by taking a small payment and waiting for a tax code to be allocated.

OK - I stand corrected (again!) but I guess it still leaves the question why HMRC didn't just do this when OP contacted them first time around.

Also there is the mystery of why OP reported tax codes L and T which I think are both supposed to be cumulative.

They can both be cumulative and non cumulative.

There seems to be some misunderstandings about T codes.  There is nothing at all unusual about them, they are often used for second sources of PAYE income and using a T suffix avoids a lot of complications (and paper) at the start of the new tax year.

In normal times when the Personal Allowance increases each year employers and pension payers are told to update L codes by a fixed amount so they give the benefit of the extra Personal Allowance without having to be sent a tax code for each individual person.

For example the current emergency tax code is 1257L.  If the Personal Allowance changed to £13,000 it would become 1300L and employers would be told to increase all L codes by 43 points.

If the codes for second jobs/pensions also had an L suffix people would start getting multiple lots of the extra Personal Allowance chasing chaos!

For sure and I don’t think anyone suggested that both pensions should have an L code, only that perhaps the L code should be against the one which has income higher than the personal allowance, and the other one.  Either way, the numbers in the codes don’t seem to add up to the correct amount unless there is another information that we don’t have.

If the code was 1257LM1 - does this mean that the 1257 is ignored in any case?  I understood that an emergency code also ignores any personal allowance, and taxes everything but I might be wrong there?

Thing is though, although Zagfles is correct that the amounts are consistent with use of an emergency code, it seems to me that they are also fairly consistent with an assumption that the total income of November, would be continued for the rest of the year (which is what  my company payroll system typically does if it suddenly sees a big increase in a month even on an L tax code - i.e. it assumes you’ve had a pay rise).  

Again I may be wrong here, but my understanding was that HMRC says whether the tax code is historically cumulative or not, but it’s the payroll software system which determines what the assumption is for smoothing the remaining months of the tax year (except per definition the last payment).  Is that right or does HMRC specify how the forecast for remaining months should be calculated?

Linton

Pat38493 said:

Dazed_and_C0nfused said:

Pat38493 said:

molerat said:

Pat38493 said:

zagfles said:

Pat38493 said:

badmemory said:

I agree with zagfles there must be an X or M1 in your code.  I thought I had misunderstood something but that is the only thing which would account for it not being self correcting.  You do need to check your account with HMRC & see what they say & then compare it with your providers account & make sure they do actually agree.  It is not unheard of for a company to use an incorrect code despite what they receive from HMRC & it is also not unheard of for HMRC to send info which is difficult for the company to tie up to a client.

OP quoted their tax codes in their second post on the first page but no harm in checking again I guess.  There was no M1 or W1 or X.  In second post OP clarified 2 pensions - one has an L tax code and one a T tax code.  According to HMRC website T means "HMRC needs to review some items with employee".

Also fixing the tax codes won't help the OP in current tax year as too much tax has already been deducted and even if charged zero by PAYE in Feb and March HMRC will still owe money back to OP.  This is probably the reason why HMRC said they can't fix it in the current year.

Also OP has not told us what tax was charged in December so we don't know for sure that the system didn't attempt to start correcting something.

Yes it will. Get a cumulative tax code in time for the last payday before the end of the tax year and refund will be paid in PAYE.

OK but if that's possible then why didn't HMRC suggest this to the OP in the first place?  Also if it's that easy why are there always so many posts on here about having to claim tax back directly from HMRC?

I was not aware that companies or pension schemes can actually provide a tax refund (as opposed to reducing the tax on the next period to zero if needed) through the payroll system.  In fact I am sure my company payroll person told me they could not do this in the past.... (maybe it's a function of the payroll system being used).

That refund is part of the payment to the employee form the employer or pension scheme, so then how does the pension scheme get the money back from HMRC if they've already handed it over to HMRC?

Companies deduct whatever tax the system tells them to, it can be a negative amount so in effect a refund as long as that is what is due at that point YTD.  The system then tells them how much to send to HMRC in total across their whole payroll, it would be most unusual (pretty much impossible) for a negative amount in total.

Claiming refunds is usually due to having a single payment in a year so no avenue to correct it in PAYE such as in the first UFPLS where there is no tax code allocated which is easily bypassed by taking a small payment and waiting for a tax code to be allocated.

OK - I stand corrected (again!) but I guess it still leaves the question why HMRC didn't just do this when OP contacted them first time around.

Also there is the mystery of why OP reported tax codes L and T which I think are both supposed to be cumulative.

They can both be cumulative and non cumulative.

There seems to be some misunderstandings about T codes.  There is nothing at all unusual about them, they are often used for second sources of PAYE income and using a T suffix avoids a lot of complications (and paper) at the start of the new tax year.

In normal times when the Personal Allowance increases each year employers and pension payers are told to update L codes by a fixed amount so they give the benefit of the extra Personal Allowance without having to be sent a tax code for each individual person.

For example the current emergency tax code is 1257L.  If the Personal Allowance changed to £13,000 it would become 1300L and employers would be told to increase all L codes by 43 points.

If the codes for second jobs/pensions also had an L suffix people would start getting multiple lots of the extra Personal Allowance chasing chaos!

For sure and I don’t think anyone suggested that both pensions should have an L code, only that perhaps the L code should be against the one which has income higher than the personal allowance, and the other one.  Either way, the numbers in the codes don’t seem to add up to the correct amount unless there is another information that we don’t have.

If the code was 1257LM1 - does this mean that the 1257 is ignored in any case?  I understood that an emergency code also ignores any personal allowance, and taxes everything but I might be wrong there?

Thing is though, although Zagfles is correct that the amounts are consistent with use of an emergency code, it seems to me that they are also fairly consistent with an assumption that the total income of November, would be continued for the rest of the year (which is what  my company payroll system typically does if it suddenly sees a big increase in a month even on an L tax code - i.e. it assumes you’ve had a pay rise).  

Again I may be wrong here, but my understanding was that HMRC says whether the tax code is historically cumulative or not, but it’s the payroll software system which determines what the assumption is for smoothing the remaining months of the tax year (except per definition the last payment).  Is that right or does HMRC specify how the forecast for remaining months should be calculated?

The payroll system has no choice - there is never any assumption of income for future months. Everything is calculated from what has actually happened:

The way it works is that 1/12th the tax code and tax bands are assigned to each month.  For a non-cumulative tax code the tax is calculated simply from the data for that month.  We have income, a tax code allocation, and tax bands solely for that month and so tax due for that month can be calculated.

For a cumulative tax code we have total accrued income, total accrued tax paid, accrued tax code allocation and accrued tax bands from the start of the year up to the end of the previous month. Then the income, tax code allocation and tax bands  for this month are added to those from the previous month and the total tax accumulated by the end of this month calculated.  The tax due this month is then the total accumulated tax at the end of this month - total accumulated tax at the end of last month.

PAYE works well by spreading the tax for regularly paid employees over the year, which is what it was designed for and isnt too bad for regularly paid employees who get bonuses.  The second advantage is that it doesnt give rise to unexpectedly large tax bills in the final month.  The third advantage is that it can never result in the taxpayer paying insufficient tax.  Clearly refunding excess tax is much easier and cheaper than chasing people for unpaid tax.

Lagrange

Linton has clearly explained how cumulative and non-cumulative tax codes work. I calculate that the opening poster has been taxed on a non-cumulative tax code (also known as a month 1/week 1 code). This means that she has paid income tax incorrectly at 40%.   

HMRC have either issued this tax code incorrectly or the pension provider has applied it as a non-cumulative code when it should not have been.  I suggest that HMRC is contacted again and a cumulative tax code is requested for the rest of the tax year.

Month 1 codes are usually used when HMRC do not know the income details e.g. a change of employment and final income details are not know from the previous employment. In this case the tax office should be aware of income information.

HMRC should also be asked about the missing tax allowances for the year as mentioned by a previous poster unless it relates to a known deduction e.g. underpayment for a previous year.

My rough calculations from the information provided are as follows:

	Nov 22	Income Tax	Jan 23	Income Tax
Monthly income	1333		1333
Drawn	7000		13000
Total for month	8333		14333
Personal allowance	-735		-735
Taxable total	7598		13598
At 20 %	3142	628.40	3142	628.40
At 40 %	4456	1782.40	10456	4182.40
Total tax		2410.80		4810.80

 

The personal allowance of £735 is the calculated from the tax code of 882 by adding 9 to the tax code and dividing by twelve.

The amount taxable at 20% is calculated by taking the basic rate band of £37,700 and dividing by 12.