Not sure why tax is being deducted

Notepad_Phil

I have a small DC pension from which I'm taking £100 per month on the 15th and up until a few months ago my Tax Code ensured that this was always paid in full with no tax needing to be deducted.

However a few months ago the provider modified their processes and so that pension payment was ended and a new one established and now I'm a bit mystified on what is happening.

If I look on the HMRC gateway I can see that the original set of payments has been placed under 'Employments ended since 5 April 2024' with £400 being paid from April 15th to July 15th with £0 of tax deducted and there is now a new Pension showing under 'Current private pensions' which so far has been paid with varying amounts of tax in every month so far.

The first month under the new process used my previous Tax Code of 175L and as I expected it paid out a straight £100 with no tax deducted. However the Tax Code then changed to 163L, which I thought would have been okay, but the second payment deducted £36 of tax and this month (paid again using a Tax Code of 163L) I've just had a tax refund of £7.40.

Now I can see that if I leave things alone then I'll presumably keep receiving refunds until I've got everything back, but I don't understand why with a Tax Code of 163L and a monthly payment of £100 (i.e. an annual £1200) that the £36 of tax was taken last month or why the refund this month is only £7.40.

Is it something to do with the pro-rata of the tax year that has caused this? I would have thought that in the 3 months since the new pension payment started that a quarter of the 163L would have been allocated against the £300 of new payments which would mean no tax, but there's probably something I'm missing.

Many thanks for any help/suggestions.

Dazed_and_C0nfused

Is it possible the pension company have somehow double counted the first £400?

So at month 7 say they were counting £700 (£100 x 7 months) as your pension income.  But because of the change in payroll they are treating your total cumulative pension at that point as £1,100?

And by the end of the tax year the total they are calculating tax on would be £1,600 (£100 x 12 + £400)?

Dazed_and_C0nfused

Just done a check on the PAYE position for month 6 and £36 tax is due if the £400 had been double counted.

And the £7.40 refund matches if another £100 is paid in month 7.

Notepad_Phil

Dazed_and_C0nfused said:

Just done a check on the PAYE position for month 6 and £36 tax is due if the £400 had been double counted.

And the £7.40 refund matches if another £100 is paid in month 7.

Many thanks. I wondered about some double counting but I couldn't figure out why the first month of payment in the new stream (i.e. month 5) would have had £0 of tax - but maybe the error came in after the first payment.

Is there a tax calculator out there that can show the month position given payments in the year so far - I had to use a spreadsheet and my limited knowledge of PAYE to get me close to the figures taken in month 6 and 7 but it didn't give the exact amounts.

Dazed_and_C0nfused

Notepad_Phil said:

Dazed_and_C0nfused said:

Just done a check on the PAYE position for month 6 and £36 tax is due if the £400 had been double counted.

And the £7.40 refund matches if another £100 is paid in month 7.

Many thanks. I wondered about some double counting but I couldn't figure out why the first month of payment in the new stream (i.e. month 5) would have had £0 of tax - but maybe the error came in after the first payment.

Is there a tax calculator out there that can show the month position given payments in the year so far - I had to use a spreadsheet and my limited knowledge of PAYE to get me close to the figures taken in month 6 and 7 but it didn't give the exact amounts.

Bit of a faff but you can use this calculator to work out the figures month by month.

https://www.tax.service.gov.uk/guidance/paye-tax-calculator/start/type-of-tax-code

but I couldn't figure out why the first month of payment in the new stream (i.e. month 5) would have had £0 of tax - 

The tax code changing from 175L to 163L will have been a factor there.

Notepad_Phil

Dazed_and_C0nfused said:
Bit of a faff but you can use this calculator to work out the figures month by month.

Yes definitely a bit of a faff to use, but one to remember for purposes like this. Thanks.