Underpayment of tax

2

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  • eskbanker
    eskbanker Posts: 30,820 Forumite
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    RG2015 said:
    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
    No reason to doubt those figures, if you have marriage allowance, but the point was that all of that 20% tax will be deducted via PAYE by your company pension provider, so it's not "tax due on your state pension" as such, it's either tax due on your company pension or, perhaps more accurately, tax due on your taxable income.
  • RG2015
    RG2015 Posts: 5,896 Forumite
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    sheramber said:
    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. 
    Yes, this is what happened.

    My point is that all of the figures were known in January 2022. I was able to work out the exact amount of tax I needed to pay in 22/23

    I guess it is just the curious method used by HMRC that resulted in an underpayment for 22/23 that will only end up being collected in 24/25.
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 13,382 Forumite
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    edited 11 October 2023 at 8:17PM
    RG2015 said:
    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
    Unlikely to make any difference overall but you cannot have a Personal Allowance greater than £12,570.

    Because the State Pension was included in your tax code later than normal HMRC use slightly different rules than would normally apply when State Pension is included in a tax code for the first time.

    Can you confirm what the weekly amount of State Pension was

    And how many (full) weeks you were entitled to State Pension in 2022-23.  Not the amount you were paid.

    What State Pension amount was included as a deduction in your 2022-23 tax code?

    Did your 2022-23 tax code include any other deduction apart from State Pension?  

    Does your current tax code include any deductions other than the State Pension and the one to collect underpaid tax?

    My 2023/2024 code was adjusted to collect the underpaid tax but once again they got it wrong.

    How much underpaid tax is being collected via your current tax code?

    How much underpaid tax does your Personal Tax Account show is owed for 2022-23?
  • RG2015
    RG2015 Posts: 5,896 Forumite
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    eskbanker said:
    RG2015 said:
    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
    No reason to doubt those figures, if you have marriage allowance, but the point was that all of that 20% tax will be deducted via PAYE by your company pension provider, so it's not "tax due on your state pension" as such, it's either tax due on your company pension or, perhaps more accurately, tax due on your taxable income.
    I said it ends up with me paying 20% on my state pension. You say that you have no reason to doubt my figures.

    The starting point is the same and the end point is the same. It's just the bit in between that is in question.

    I have no reason to doubt your explanation that there is no tax due on my state pension. Indeed I am indebted to you for correcting my inaccurate terminology. It will stand me in good stead if I ever need  to converse with HMRC.

    Nevertheless I will continue to calculate my tax figures using my method. However it will now in the full knowledge that the methodology used by HMRC is quite difference and we will all get to the same conclusion, eventually.
    ,

     


  • badmemory
    badmemory Posts: 7,718 Forumite
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    The major problem is that HMRC can only act on the info given by DWP.  I have been receiving my state pension for over 10 years & the DWP still haven't got it right once.
  • RG2015
    RG2015 Posts: 5,896 Forumite
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    edited 11 October 2023 at 8:45PM
    RG2015 said:
    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
    Unlikely to make any difference overall but you cannot have a Personal Allowance greater than £12,570.

    Because the State Pension was included in your tax code later than normal HMRC use slightly different rules than would normally apply when State Pension is included in a tax code for the first time.

    Can you confirm what the weekly amount of State Pension was

    And how many (full) weeks you were entitled to State Pension in 2022-23.  Not the amount you were paid.

    What State Pension amount was included as a deduction in your 2022-23 tax code?

    Did your 2022-23 tax code include any other deduction apart from State Pension?  

    Does your current tax code include any deductions other than the State Pension and the one to collect underpaid tax?

    My 2023/2024 code was adjusted to collect the underpaid tax but once again they got it wrong.

    How much underpaid tax is being collected via your current tax code?

    How much underpaid tax does your Personal Tax Account show is owed for 2022-23?
    Point 1 acknowledged. The figure is my personal allowance plus 10% of my wife's personal allowance.

    As regards the rest, I am grateful for your input but am completely happy with the figures given to me by HMRC, so I do not require any further calculations.

    I can though confirm that I was entitled to a full year's state pension in 2022/2023 and that I have no other deductions in any tax year.

    The amounts are relatively small with a £22 underpayment included in this year's tax code and £58 to be collected in 2024/2025.
  • RG2015
    RG2015 Posts: 5,896 Forumite
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    badmemory said:
    The major problem is that HMRC can only act on the info given by DWP.  I have been receiving my state pension for over 10 years & the DWP still haven't got it right once.
    Why am I not surprised at this.

    Good to have a heads up though.
  • molerat
    molerat Posts: 31,802 Forumite
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    edited 12 October 2023 at 12:45PM
    eskbanker said:
    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.
    My 19-20 underpayment due to first year SP was collected in the 20-21 code and notified well before the start of the year.  I calculated I owed £18 more than their underpayment figure but HMRC were happy with their figure so 21-22 was not adjusted.

  • molerat
    molerat Posts: 31,802 Forumite
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    edited 12 October 2023 at 12:53PM
    RG2015 said:

    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
    It works out the same but the actual process is
    Personal allowance £12,570
    State pension            £9,000
    Tax Allowance            £3,570
    Company pension   £20,000
    Tax Allowance            £3,570
    Taxable income.      £16,430
    Tax at 20%.                £3,286
    Spouse Transfer           £252
    Tax  Due                     £3,034


  • RG2015
    RG2015 Posts: 5,896 Forumite
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    molerat said:
    eskbanker said:
    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.
    My 19-20 underpayment due to first year SP was collected in the 20-21 code and notified well before the start of the year.  I calculated I owed £18 more than their underpayment figure but HMRC were happy with their figure so 21-22 was not adjusted.

    Yes, I find that HMRC generally calculate a slightly lower figure than I do. No problem there.

    What I did just notice was the figure included in my PSA online for my current year's state pension. It is spot on, with 1 week at last year's rate and 51 weeks at this years rate.

    Therefore I am hopeful that there will be no underpayment for 2023/2024.

    Sadly as per my first thread the underpayment for 2022/2023 remains to be collected in 2024/2025. I had briefly toyed with the idea of paying it (£58.35), but thought that was hardly the behaviour on a true MSEer.  :)
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