PAYE tax confusion with multiple small pensions

magickmagpie

I am confused. Up until June of this year my income for the past few years has been from 2 work pensions and was just shy of the personal allowance so I paid no income tax. This June I started to get my state pension, which takes me over the personal allowance, so I expected to be paying some tax. For the month of June no tax was taken from either of my pensions. Then I was sent a notice of coding which showed that tax would be taken from the smaller of the two work pensions - and indeed some tax was taken from it (about half the amount of tax I calculated would be owing each month). So I rang HMRC, stayed on the line for nearly an hour, and finally got through. The lady at the other end changed my tax codes so that tax would be taken from the larger of the two work pensions instead.

Now when I check online, my personal tax statement correctly shows that tax will be taken from the larger pension, not the smaller one, and gives a calculation of the amount of tax due (which appears to be correct) - but it also shows that HMRC estimate that I will owe an extra £350 quid in tax for this year ???? I don't know where this number has come from, and can only assume that they think the income amounts for this year sent by the two pension providers may be incorrect (they are not) - however this 350 quid of estimated owed tax has resulted in a reduction of the personal allowance against the pension that will be taxed - consequently I will be overpaying tax by about £38 every month this year.

As I am reluctant to waste anymore time waiting for HMRC to answer the phone, I'm hoping someone here can reassure me that it will sort itself out with a tax refund at the end of the financial year? And I thought PAYE was meant to be simpler than Self-Assessment!!!

Dazed_and_C0nfused

magickmagpie said:

I am confused. Up until June of this year my income for the past few years has been from 2 work pensions and was just shy of the personal allowance so I paid no income tax. This June I started to get my state pension, which takes me over the personal allowance, so I expected to be paying some tax. For the month of June no tax was taken from either of my pensions. Then I was sent a notice of coding which showed that tax would be taken from the smaller of the two work pensions - and indeed some tax was taken from it (about half the amount of tax I calculated would be owing each month). So I rang HMRC, stayed on the line for nearly an hour, and finally got through. The lady at the other end changed my tax codes so that tax would be taken from the larger of the two work pensions instead.

Now when I check online, my personal tax statement correctly shows that tax will be taken from the larger pension, not the smaller one, and gives a calculation of the amount of tax due (which appears to be correct) - but it also shows that HMRC estimate that I will owe an extra £350 quid in tax for this year ???? I don't know where this number has come from, and can only assume that they think the income amounts for this year sent by the two pension providers may be incorrect (they are not) - however this 350 quid of estimated owed tax has resulted in a reduction of the personal allowance against the pension that will be taxed - consequently I will be overpaying tax by about £38 every month this year.

As I am reluctant to waste anymore time waiting for HMRC to answer the phone, I'm hoping someone here can reassure me that it will sort itself out with a tax refund at the end of the financial year? And I thought PAYE was meant to be simpler than Self-Assessment!!!

Unless you are willing to post the relevant details it's impossible to answer.

Expected amount of taxable income from each of the 3 pensions and tax code against each non State Pension would be a start.  Plus make up of your main tax code.

There should be absolutely no reason why you would get a refund after the end of the tax year.  Although it can only ever be provisional PAYE is designed to collect the correct amount of tax so if things are correct during the year no adjustment is needed after the event.

magickmagpie

Ok.
Income from State Pension £8221
Income from Pension 1 £1759 Tax Code CBRX
Income from Pension 2 10005 Tax Code C217XL

The online tax statement shows a taxable income of £7397 on which £1479 is due in tax (these figures appear to be correct and agree with my own calculations). But at the bottom it shows an additional estimated tax adjustment of £325.82, giving an estimated £1805 tax due. I have no idea where this estimate has come from as I have no other taxable income.

Dazed_and_C0nfused

magickmagpie said:

Ok.
Income from State Pension £8221
Income from Pension 1 £1759 Tax Code CBRX
Income from Pension 2 10005 Tax Code C217XL

The online tax statement shows a taxable income of £7397 on which £1479 is due in tax (these figures appear to be correct and agree with my own calculations). But at the bottom it shows an additional estimated tax adjustment of £325.82, giving an estimated £1805 tax due. I have no idea where this estimate has come from as I have no other taxable income.

The first thing to check is in relation to pension 1.

As BR (20%) tax is the correct code for this you will presumably owe tax for the period when you didn't pay 20% on it.

From your original post this is going to be the first 3 months of the tax year.  £1,759 x 3/12ths = £440.  Tax owed on that is £88.

Is the £8,221 State Pension the (accurate) amount of State Pension entitlement for the current tax year or the full annual amount for the current tax year i.e. 52 weeks x SP award?

magickmagpie

The state pension amount is the accurate amount to be paid in the current tax year (from June 2023) not the full amount if it was being paid for the whole tax year).
I paid £73.78 tax on Pension 1 this month (July), but no tax in April, May or June.

magickmagpie

I'm not sure the BR code for pension 1 is correct at all. I asked for the tax to be taken from pension 2 - which is large enough to cover my total tax liability - I should not be paying any tax on Pension 1!!

molerat

Pension 2 is greater than the £2179 tax allowance so BR is correct for P1 on that basis.  Mid year changes like this gets the system into a muddle and the amounts shown on the tax account might not be what will actually happen.  The numbers are often fudged to get the right outcome. The X suffix means that previous payments are not taken into account..

With a code of 217X P2 (£833.75 pm ?) should have £130.40 pm deducted going forward.

With a code of BRX P1 (£146.59 pm ?) should have £29.20 pm deducted going forward.

Add those up for the rest of the year then add tax already paid and see how that comes out.  Your tax liability for the year should be around £1481.

If this is from Jul, M4, then 9 x £159.60 = £1436 so if you have not paid much tax so far then looks about correct.

magickmagpie

Thanks for clearing that up for me - those figures look correct and match up to what I think my tax liability for the year should be. So the supposed £325.82 of estimated tax shown owed is a bit of a red herring or a fudge to make the numbers work out right! I will keep a close eye on next month's payslips and see what actually happens.

Dazed_and_C0nfused

I paid £73.78 tax on Pension 1 this month (July), but no tax in April, May or June.

That shows that either HMRC issued a different tax code to the one you mentioned (CBR(X)) or the pension company didn't apply it correctly.

CBR(X) would limit the tax to 20% but they have deducted the statutory maximum of 50% so almost certainly have operated CBR (on a cumulative basis) That does mean you won't be in as much arrears as previously thought but you might find you pay more than 20% next time they make a payment.

Once you have paid 20% of the cumulative gross pension they will just deduct 20% going forward.

If £73.78 was deducted in month 4 you'll probably find a smidgen less is deducted in month 5 and then it will 20% from month 6 onwards.