HMRC Investigation time limit

eskbanker

chutney51 said:

My partner retired a few years ago after 35 years as a PAYE employee.
After her first year receiving her pension from that employer, she cashed in a SIPP in the second year. This meant her income was £103k for that year as opposed to the normal pension of around £21k.

A bit of a side issue but going back to this SIPP access, this seems a rash thing to do unless there was a compelling need to access a substantial lump sum, albeit with a significant tax burden reducing its net value considerably?  There would generally be 25% of the balance available tax-free, so was the £82K the full amount drawn down or just the 75% that was subject to taxation from a total of circa £109K?

[Deleted User]

eskbanker said:

chutney51 said:

My partner retired a few years ago after 35 years as a PAYE employee.
After her first year receiving her pension from that employer, she cashed in a SIPP in the second year. This meant her income was £103k for that year as opposed to the normal pension of around £21k.

A bit of a side issue but going back to this SIPP access, this seems a rash thing to do unless there was a compelling need to access a substantial lump sum, albeit with a significant tax burden reducing its net value considerably?  There would generally be 25% of the balance available tax-free, so was the £82K the full amount drawn down or just the 75% that was subject to taxation from a total of circa £109K?

I think that it would have been the latter given that c£17000 was deducted by the provider at 20% rate on £83000.  

Hoenir

There appears little complexity to the tax return. Have you reworked the figures yourselves?  Compute the tax due and compare to what was actually paid. 

eskbanker

[Deleted User] said:

eskbanker said:

chutney51 said:

My partner retired a few years ago after 35 years as a PAYE employee.
After her first year receiving her pension from that employer, she cashed in a SIPP in the second year. This meant her income was £103k for that year as opposed to the normal pension of around £21k.

A bit of a side issue but going back to this SIPP access, this seems a rash thing to do unless there was a compelling need to access a substantial lump sum, albeit with a significant tax burden reducing its net value considerably?  There would generally be 25% of the balance available tax-free, so was the £82K the full amount drawn down or just the 75% that was subject to taxation from a total of circa £109K?

I think that it would have been the latter given that c£17000 was deducted by the provider at 20% rate on £83000.  

True, I was just mulling over the possibility that there'd perhaps been some confusion between gross and net figures when declaring income, given the lack of clarity of how the tax was calculated.

[Deleted User]

JamesRobinson48 said:

In the circumstances I suggest that OP's partner would be well advised to share all the details with a local chartered accountant and follow their advice.

One can sort of see where the supposed £12k underpayment might possibly be coming from.  If total taxable income was £103K, then the top £3k of that is taxable at an effective marginal rate of 60% (given part withdrawal of Personal Allowance), and the next £50k at 40%.  So on those two top slices of income, the tax charge is:

(£3 * 60%) + (£50 * 40%) = ~ £22k tax 

We've been told that for some reason PAYE tax deductions on those same slices of taxable income were taken at only 20%, i.e.

(£3 + £50) * 20% = ~£10k tax

Difference between ~ £22k and ~ £10k is ~ £12k tax liability, i.e. not collected by PAYE so required to be paid by the taxpayer. All £ figures very approximate/rounded.

So just possibly, having declared all the income due through self-assessment, OP's partner somehow overlooked actually paying to HMRC the incremental income tax that was shown as due?

I know this doesn't exactly fit some of the circumstances which OP has disclosed. I mention it only as one possible explanation for an alleged £12k shortfall amount.

Exactly. On the withdrawal it is likely that the provider, as is customary, operated a BR code on the taxable withdrawal - all at 20%.

Hoenir

[Deleted User] said:

JamesRobinson48 said:

In the circumstances I suggest that OP's partner would be well advised to share all the details with a local chartered accountant and follow their advice.

One can sort of see where the supposed £12k underpayment might possibly be coming from.  If total taxable income was £103K, then the top £3k of that is taxable at an effective marginal rate of 60% (given part withdrawal of Personal Allowance), and the next £50k at 40%.  So on those two top slices of income, the tax charge is:

(£3 * 60%) + (£50 * 40%) = ~ £22k tax 

We've been told that for some reason PAYE tax deductions on those same slices of taxable income were taken at only 20%, i.e.

(£3 + £50) * 20% = ~£10k tax

Difference between ~ £22k and ~ £10k is ~ £12k tax liability, i.e. not collected by PAYE so required to be paid by the taxpayer. All £ figures very approximate/rounded.

So just possibly, having declared all the income due through self-assessment, OP's partner somehow overlooked actually paying to HMRC the incremental income tax that was shown as due?

I know this doesn't exactly fit some of the circumstances which OP has disclosed. I mention it only as one possible explanation for an alleged £12k shortfall amount.

Exactly. On the withdrawal it is likely that the provider, as is customary, operated a BR code on the taxable withdrawal - all at 20%.

Is a BR tax code customary for pension withdrawls? 

Dazed_and_C0nfused

Hoenir said:

[Deleted User] said:

JamesRobinson48 said:

In the circumstances I suggest that OP's partner would be well advised to share all the details with a local chartered accountant and follow their advice.

One can sort of see where the supposed £12k underpayment might possibly be coming from.  If total taxable income was £103K, then the top £3k of that is taxable at an effective marginal rate of 60% (given part withdrawal of Personal Allowance), and the next £50k at 40%.  So on those two top slices of income, the tax charge is:

(£3 * 60%) + (£50 * 40%) = ~ £22k tax 

We've been told that for some reason PAYE tax deductions on those same slices of taxable income were taken at only 20%, i.e.

(£3 + £50) * 20% = ~£10k tax

Difference between ~ £22k and ~ £10k is ~ £12k tax liability, i.e. not collected by PAYE so required to be paid by the taxpayer. All £ figures very approximate/rounded.

So just possibly, having declared all the income due through self-assessment, OP's partner somehow overlooked actually paying to HMRC the incremental income tax that was shown as due?

I know this doesn't exactly fit some of the circumstances which OP has disclosed. I mention it only as one possible explanation for an alleged £12k shortfall amount.

Exactly. On the withdrawal it is likely that the provider, as is customary, operated a BR code on the taxable withdrawal - all at 20%.

Is a BR tax code customary for pension withdrawls? 

For some yes.  A lot of first withdrawals are taxed using the emergency code but in some situations the pension provider can use code BR.

[Deleted User]

Hoenir said:

[Deleted User] said:

JamesRobinson48 said:

In the circumstances I suggest that OP's partner would be well advised to share all the details with a local chartered accountant and follow their advice.

One can sort of see where the supposed £12k underpayment might possibly be coming from.  If total taxable income was £103K, then the top £3k of that is taxable at an effective marginal rate of 60% (given part withdrawal of Personal Allowance), and the next £50k at 40%.  So on those two top slices of income, the tax charge is:

(£3 * 60%) + (£50 * 40%) = ~ £22k tax 

We've been told that for some reason PAYE tax deductions on those same slices of taxable income were taken at only 20%, i.e.

(£3 + £50) * 20% = ~£10k tax

Difference between ~ £22k and ~ £10k is ~ £12k tax liability, i.e. not collected by PAYE so required to be paid by the taxpayer. All £ figures very approximate/rounded.

So just possibly, having declared all the income due through self-assessment, OP's partner somehow overlooked actually paying to HMRC the incremental income tax that was shown as due?

I know this doesn't exactly fit some of the circumstances which OP has disclosed. I mention it only as one possible explanation for an alleged £12k shortfall amount.

Exactly. On the withdrawal it is likely that the provider, as is customary, operated a BR code on the taxable withdrawal - all at 20%.

Is a BR tax code customary for pension withdrawls? 

Yes - or the emergency code, at least on the initial payment, as in this case. 

Thereafter, one would anticipate an amended code to be issued by HMRC. 

eskbanker

Re tax codes, OP stated that there were three different ones applied:

chutney51 said:

It appears the SIPP provider charged tax at 20% on the £83k. It was in 3 different payments with 3 different tax codes.

sheramber

Presumably, HMRC issued an up to date code after each payment