Taxing of State Pension

Qyburn

On the entitle vs actually received mystery I have just checked mine. I started receiving SP weekly during this tax year so I received one part week and can look on the calendar to see how many full weeks I'll receive before the year end. So the total I'll receive is one part week plus X times a full week.

This does not match the figure HMRC have for tax piurposes, their figure assumes all payments will be full weeks. In other words they've rounded up this first part week and will tax me on the full weekly figure for a total of (X + 1) full weeks.

Dazed_and_C0nfused

Qyburn said:

On the entitle vs actually received mystery I have just checked mine. I started receiving SP weekly during this tax year so I received one part week and can look on the calendar to see how many full weeks I'll receive before the year end. So the total I'll receive is one part week plus X times a full week.

This does not match the figure HMRC have for tax piurposes, their figure assumes all payments will be full weeks. In other words they've rounded up this first part week and will tax me on the full weekly figure for a total of (X + 1) full weeks.

This is HMRC's explanation.

If it's 52 weeks in your tax code then that is for a different reason.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye76086

Qyburn

Dazed_and_C0nfused said:

This is HMRC's explanation.

Right, so when HMRC say "actual amount" they mean the amount derived from their calculation, which is different from what DWP calculate, or what you receive. Does it ever get corrected to the actual "actual amount"?

Dazed_and_C0nfused

What you receive is irrelevant, State Pension is taxed based on your entitlement.

In the first year, for tax code purposes, HMRC use either the actual amount, for example 23 weeks x £221.20 or the full annual amount, 52 weeks x £221.20.

When your end of year calculation is done it would 23 weeks x £221.20 (using the example above), not 52 weeks x £221.20.

KevinG

Qyburn said:

On the entitle vs actually received mystery I have just checked mine. I started receiving SP weekly during this tax year so I received one part week and can look on the calendar to see how many full weeks I'll receive before the year end. So the total I'll receive is one part week plus X times a full week.

This does not match the figure HMRC have for tax piurposes, their figure assumes all payments will be full weeks. In other words they've rounded up this first part week and will tax me on the full weekly figure for a total of (X + 1) full weeks.

I hadn't even considered partial weeks and you're right, my first payment included a partial week. None of the subsequent replies have explained why HMRC do not take this into account in their calculations.

Qyburn

Dazed_and_C0nfused said:

In the first year, for tax code purposes, HMRC use either the actual amount, for example 23 weeks x £221.20 or the full annual amount, 52 weeks x £221.20.

The link says they don't.

"Where the actual amount of state pension / benefits are included in the CY tax code, the benefit will be calculated automatically as follows

• Calculating the number of complete weeks from the start of the benefit to the end of the tax year (for example, number of days divided by 7, rounded down)
• Multiplying the weekly amount of state pension by the number of complete weeks"

Dazed_and_C0nfused

Qyburn said:

Dazed_and_C0nfused said:

In the first year, for tax code purposes, HMRC use either the actual amount, for example 23 weeks x £221.20 or the full annual amount, 52 weeks x £221.20.

The link says they don't.

"Where the actual amount of state pension / benefits are included in the CY tax code, the benefit will be calculated automatically as follows

• Calculating the number of complete weeks from the start of the benefit to the end of the tax year (for example, number of days divided by 7, rounded down)
• Multiplying the weekly amount of state pension by the number of complete weeks"

I think you've missed some key elements there.

Tax code calculation

When NPS calculates the tax code for the first year in which the state pension / benefits are received the following rules will be applied

State pension / benefits will not be calculated before the date of first payment

Where the individual is liable to tax, NPS will check the date of first payment prior to calculating the new tax code

When state pension / benefits start to be paid, NPS will calculate the adjusted net income for Personal Allowance purposes and check if the individual is liable to tax, before calculating the amount of state pension / benefits to be coded

Where the individual is liable to pay tax and the code is calculated within one month after the date of the first payment, NPS will include the annual amount due in the CY tax code. The code will be operated on a non cumulative week 1 / month 1 basis without an In-Year Adjustment

Where the individual is liable to pay tax and the code is calculated more than one month after the date of the first payment, NPS will include the actual amount due in the CY tax code. The code will be operated on a non cumulative week 1 / month 1 basis with an In-Year Adjustment

Where the individual is not liable to tax, NPS will include the actual amount due in the CY tax code. The code will be operated on a cumulative basis. Consider whether previous pay and tax details should be included

Where the individual was previously not liable to tax but because of starting to receive state pension / benefits is now liable to tax, NPS will include the actual amount due in the CY tax code. The code will be operated on a non cumulative week 1 / month 1 basis with an In-Year Adjustment. This rule will also be applied by NPS where there were no existing estimated earnings on the individual's record and an operator has now estimated earnings

Where the actual amount of state pension / benefits are included in the CY tax code, the benefit will be calculated automatically as follows

Calculating the number of complete weeks from the start of the benefit to the end of the tax year (for example, number of days divided by 7, rounded down)

Multiplying the weekly amount of state pension by the number of complete weeks

Qyburn

Dazed_and_C0nfused said:

Qyburn said:

The link says they don't.

"Where the actual amount of state pension / benefits are included in the CY tax code, the benefit will be calculated automatically as follows

• Calculating the number of complete weeks from the start of the benefit to the end of the tax year (for example, number of days divided by 7, rounded down)
• Multiplying the weekly amount of state pension by the number of complete weeks"

I think you've missed some key elements there.

Don't think so, because the figure they have said they'll tax me on corresponds to the bit I quoted, and not to the amount I'll actually receive.

You could summarise it by saying they tax you on the number of whole weeks from your birthday until the end of the tax year. Whereas DWP pay on a weekly cycle of their choosing, which could possibly be the same amount, but in most cases will be less. Depending on the week you get paid.

Actually could it ever be the same, is there a case where the first payment will be a whole week?

Dazed_and_C0nfused

Qyburn said:

Dazed_and_C0nfused said:

Qyburn said:

The link says they don't.

"Where the actual amount of state pension / benefits are included in the CY tax code, the benefit will be calculated automatically as follows

• Calculating the number of complete weeks from the start of the benefit to the end of the tax year (for example, number of days divided by 7, rounded down)
• Multiplying the weekly amount of state pension by the number of complete weeks"

I think you've missed some key elements there.

Don't think so, because the figure they have said they'll tax me on corresponds to the bit I quoted, and not to the amount I'll actually receive.

You could summarise it by saying they tax you on the number of whole weeks from your birthday until the end of the tax year. Whereas DWP pay on a weekly cycle of their choosing, which could possibly be the same amount, but in most cases will be less. Depending on the week you get paid.

Actually could it ever be the same, is there a case where the first payment will be a whole week?

I think we're at cross purposes, I've been referring specifically to how the entry in your tax code is derived.  Not the amount you will be taxed on.

For the first tax year that is the number of complete weeks you are entitled to the pension multiplied by the weekly rate.  What you receive in that tax year isn't something HMRC are interested in.

KevinG

I think this whole thread proves how utterly stupid this system is and how the tax should be based purely on amounts actually paid and received, which would be so much easier to implement and understand for all parties.