New State Pension & Tax

Gummomarx

p00hsticks said:

So, as I suggested the code is going to be applied on a Month 1  basis (as indicated by the X) - which means that the tax is calculated afresh each month, without any reference to what has gone before.

So once it is applied to your works pension, each month your tax allowance of 13830 will effectively be divided by 12 and then reduced by 1/12th of your annual state pension  amount.

Thanks for that but could you please reproduce that formula with actual numbers - I'm having a brain freeze from my mis/interpretation.

molerat

The on line tax account will show how they have arrived at the code.  There is usually some fudging of numbers to come out with the right tax deducted. They know you will need to pay £x in tax so divide that by the number of months left and work out a code that will see that amount deducted usually by throwing an underpaid tax figure into the calculation to square it.

Gummomarx

Frightfully confusing for a novice.

[Deleted User]

Your tax estimate is £918 plus an underpayment (carried forward?) of £225 which totals £1143. 

The £918 looks pretty close to me!

Have you received details of the underpayment of £225?

Gummomarx

purdyoaten2 said:

Your tax estimate is £918 plus an underpayment (carried forward?) of £225 which totals £1143. 

The £918 looks pretty close to me!

Have you received details of the underpayment of £225?

Right, I get the £918 (very close to my calculation after factoring in the extra week's pension at the end of the year).

I have no idea about the £225 - I'd been flummoxed by the main event we've been discussing.  I've only been liable to pay tax since my 66th birthday five days ago.

[Deleted User]

Gummomarx said:

purdyoaten2 said:

Your tax estimate is £918 plus an underpayment (carried forward?) of £225 which totals £1143. 

The £918 looks pretty close to me!

Have you received details of the underpayment of £225?

Right, I get the £918 (very close to my calculation after factoring in the extra week's pension at the end of the year).

I have no idea about the £225 - I'd been flummoxed by the main event we've been discussing.  I've only been liable to pay tax since my 66th birthday five days ago.

I see that it’s for this year! £225 underpaid suggests that £1125 of income wasn’t taxed - can you provide a full breakdown of the code?

Gummomarx

[Deleted User] said:...can you provide a full breakdown of the code?

You mean this?

[Deleted User]

Gummomarx said:

purdyoaten2 said:...can you provide a full breakdown of the code?

You mean this?

Yes - it seems that the adjustment in your tax code as a result of your state pension has been applied correctly. The only thing that I can think of is that the new code is possibly issued  too late to be applied to your occupational pension in July - so state pension received from commencement to end of July will not be taxed. The new code will first be applied to August’s occupational pension. 

HMRC has estimated that your state pension up to 31st July is £1125, 20% of which is £225. 

Only a guess - either way the year 2023/24 will be fully reviewed.

Gummomarx

purdyoaten2 said:

Yes - it seems that the adjustment in your tax code as a result of your state pension has been applied correctly. The only thing that I can think of is that the new code is possibly issued  too late to be applied to your occupational pension in July - so state pension received from commencement to end of July will not be taxed. The new code will first be applied to August’s occupational pension. 

HMRC has estimated that your state pension up to 31st July is £1125, 20% of which is £225. 

Only a guess - either way the year 2023/24 will be fully reviewed.

They've over estimated that - I'd only be hitting £815 by 2 August. I think I'd need to keep focussed on the £918 we've calculated for the year and review carefully next April.

[Deleted User]

Gummomarx said:

purdyoaten2 said:

Yes - it seems that the adjustment in your tax code as a result of your state pension has been applied correctly. The only thing that I can think of is that the new code is possibly issued  too late to be applied to your occupational pension in July - so state pension received from commencement to end of July will not be taxed. The new code will first be applied to August’s occupational pension. 

HMRC has estimated that your state pension up to 31st July is £1125, 20% of which is £225. 

Only a guess - either way the year 2023/24 will be fully reviewed.

They've over estimated that - I'd only be hitting £815 by 2 August. I think I'd need to keep focussed on the £918 we've calculated for the year and review carefully next April.

HMRC review every case after the end of the tax year - usually the reviews commenced around August when I worked there but that was a long time ago!