Underpayment of tax

RG2015

This was on my personal tax account online yesterday.

"You paid too little tax in the 2022 to 2023 tax year"

I started drawing my state pension in April 2022 and I had been advised by DWP of the amount in January 2022. I spoke to HMRC but they said they had to wait for DWP to send them the details.

HMRC did eventually change my tax code in July 2022 but clearly miscalculated.

My 2023/2024 code was adjusted to collect the underpaid tax but once again they got it wrong. They are now saying that my 2024/2025 tax code will be adjusted to collect the unpaid tax.

I find it surprising that the communication between DWP and HMRC is so poor. But even worse is that HMRC appear to be incapable of calculating a code to collect the correct tax due on my state pension.

Is it the case that every tax paying pensioner in the UK has to put up with incorrect calculations by HMRC that take 2 or 3 years to get sorted?  

RG2015

MY PTA online also shows the following:

Date	Description	Amount	Tax left to pay
9 October 2023	Amount as shown on your tax calculation letter		£xxx

I assume that I have to wait for this to arrive in the post and that there is no way to view this letter online.

eskbanker

RG2015 said:

HMRC appear to be incapable of calculating a code to collect the correct tax due on my state pension

State pension is taxable income but is always paid gross, so any PAYE code adjustment would relate to a different income stream, unless you have a highly enhanced state pension exceeding £12,570?

RG2015 said:

"You paid too little tax in the 2022 to 2023 tax year"

I started drawing my state pension in April 2022 and I had been advised by DWP of the amount in January 2022. I spoke to HMRC but they said they had to wait for DWP to send them the details.

HMRC did eventually change my tax code in July 2022 but clearly miscalculated.

My 2023/2024 code was adjusted to collect the underpaid tax but once again they got it wrong. They are now saying that my 2024/2025 tax code will be adjusted to collect the unpaid tax.

Coding adjustments will typically be applied with a year's gap, i.e. 2022/23 underpayments should be collected in 2024/25, not 2023/24.

RG2015

eskbanker said:

RG2015 said:

HMRC appear to be incapable of calculating a code to collect the correct tax due on my state pension

State pension is taxable income but is always paid gross, so any PAYE code adjustment would relate to a different income stream, unless you have a highly enhanced state pension exceeding £12,570?

RG2015 said:

"You paid too little tax in the 2022 to 2023 tax year"

I started drawing my state pension in April 2022 and I had been advised by DWP of the amount in January 2022. I spoke to HMRC but they said they had to wait for DWP to send them the details.

HMRC did eventually change my tax code in July 2022 but clearly miscalculated.

My 2023/2024 code was adjusted to collect the underpaid tax but once again they got it wrong. They are now saying that my 2024/2025 tax code will be adjusted to collect the unpaid tax.

Coding adjustments will typically be applied with a year's gap, i.e. 2022/23 underpayments should be collected in 2024/25, not 2023/24.

1. Yes, it is applied to my company pension. Nevertheless the calculation to determine the correct tax code to collect the tax due on my SP is pretty simple arithmetic.

2. My current year's tax code does include an adjustment to incorporate tax on my current year's SP and my prior year's underpayment. Once again it is a simple arithmetic calculation that HMRC failed to make correctly.

Albermarle

RG2015 said:

MY PTA online also shows the following:

Date	Description	Amount	Tax left to pay
9 October 2023	Amount as shown on your tax calculation letter		£xxx

I assume that I have to wait for this to arrive in the post and that there is no way to view this letter online.

If you have opted for paperless you can see letters online ( you get an e mail informing you have a message).
Not sure if you can otherwise.

RG2015

Albermarle said:

RG2015 said:

MY PTA online also shows the following:

Date	Description	Amount	Tax left to pay
9 October 2023	Amount as shown on your tax calculation letter		£xxx

I assume that I have to wait for this to arrive in the post and that there is no way to view this letter online.

If you have opted for paperless you can see letters online ( you get an e mail informing you have a message).
Not sure if you can otherwise.

I thought I had opted for paperless but have neither had an email nor any messages.

eskbanker

RG2015 said:

1. Yes, it is applied to my company pension. Nevertheless the calculation to determine the correct tax code to collect the tax due on my SP is pretty simple arithmetic.

2. My current year's tax code does include an adjustment to incorporate tax on my current year's SP and my prior year's underpayment. Once again it is a simple arithmetic calculation that HMRC failed to make correctly.

I'm still puzzled by the references to tax being due on your SP, but it's difficult to diagnose any coding issue without sight of all the relevant numbers, and you may not wish to share these, so hopefully all will be clear once you see the letter.

RG2015

eskbanker said:

RG2015 said:

1. Yes, it is applied to my company pension. Nevertheless the calculation to determine the correct tax code to collect the tax due on my SP is pretty simple arithmetic.

2. My current year's tax code does include an adjustment to incorporate tax on my current year's SP and my prior year's underpayment. Once again it is a simple arithmetic calculation that HMRC failed to make correctly.

I'm still puzzled by the references to tax being due on your SP, but it's difficult to diagnose any coding issue without sight of all the relevant numbers, and you may not wish to share these, so hopefully all will be clear once you see the letter.

The state pension is taxable at my basic rate of 20%.

How else should I describe this. Perhaps I should say that my personal allowance is reduced by the amount of my state pension.

It still ends up as tax of 20% being paid on my state pension.

sheramber

If you received your state pension from April but your code was not changed until July , then you would not have paid tax on it from April to July. In that case you would have an underpayment for those months in 22/23. Your amended code would only result in the increased tax amount being collected once your pension payer operated the new code. If there was a delay in that happening then there would be a month/ months delay in collecting the correct amount of tax. HMRC would estimate the underpayment but would not know the exact amount until they finalised the pay and tax once they received the end of year figures from your pension payers. Any additional underpayment would be carried forward to 23/24. Code numbers are only an estimate. The final position is calculated after the end of the tax year. 

eskbanker

RG2015 said:

eskbanker said:

RG2015 said:

1. Yes, it is applied to my company pension. Nevertheless the calculation to determine the correct tax code to collect the tax due on my SP is pretty simple arithmetic.

2. My current year's tax code does include an adjustment to incorporate tax on my current year's SP and my prior year's underpayment. Once again it is a simple arithmetic calculation that HMRC failed to make correctly.

I'm still puzzled by the references to tax being due on your SP, but it's difficult to diagnose any coding issue without sight of all the relevant numbers, and you may not wish to share these, so hopefully all will be clear once you see the letter.

The state pension is taxable at my basic rate of 20%.

How else should I describe this. Perhaps I should say that my personal allowance is reduced by the amount of my state pension.

It still ends up as tax of 20% being paid on my state pension.

It doesn't really end up as that though - it ends up as 20% tax being deducted from the excess of your total taxable income above the personal tax allowance.

If you have state pension plus other income streams, the state pension is always treated as using up the initial chunk of your personal allowance, leaving less headroom for other income, but it's always the latter that incur the tax, so the coding notices you refer to will only be relevant to whoever else is paying you via PAYE, i.e. it's your employer or other pension provider who deducts income tax from your earnings, not DWP.

RG2015

eskbanker said:

RG2015 said:

eskbanker said:

RG2015 said:

1. Yes, it is applied to my company pension. Nevertheless the calculation to determine the correct tax code to collect the tax due on my SP is pretty simple arithmetic.

2. My current year's tax code does include an adjustment to incorporate tax on my current year's SP and my prior year's underpayment. Once again it is a simple arithmetic calculation that HMRC failed to make correctly.

I'm still puzzled by the references to tax being due on your SP, but it's difficult to diagnose any coding issue without sight of all the relevant numbers, and you may not wish to share these, so hopefully all will be clear once you see the letter.

The state pension is taxable at my basic rate of 20%.

How else should I describe this. Perhaps I should say that my personal allowance is reduced by the amount of my state pension.

It still ends up as tax of 20% being paid on my state pension.

It doesn't really end up as that though - it ends up as 20% tax being deducted from the excess of your total taxable income above the personal tax allowance.

If you have state pension plus other income streams, the state pension is always treated as using up the initial chunk of your personal allowance, leaving less headroom for other income, but it's always the latter that incur the tax, so the coding notices you refer to will only be relevant to whoever else is paying you via PAYE, i.e. it's your employer or other pension provider who deducts income tax from your earnings, not DWP.

I thought I understood this but am now questioning if I do.

I see the process as follows but I happy to be corrected.

Company pension   £20,000
State pension            £9,000
Total.                        £29,000
Personal allowance £13,830
Taxable income.      £15,170
Tax at 20%.               £3,034