Withdraw lump sum from Pension BR tax code.

Cobbler_tone

LHW99 said:

Cobbler_tone said:

Strange innit?!
Everyone who I know and has been made redundant (there has been a LOT in my time) had the opposite experience. i.e. they paid 'super tax' and got rebates back (very nice ones in some instances) the following tax year if they didn't work again.
I think this is better than what we are reading here!

That's because their PAYE code assumed that over the year they would have a certain income, on which a given tax amount is due, and a tax code was given to deduct it in 12 installments. When they left, they had less than a year's income, so less tax was due for the year, and a refund was sent.

This, unfortunately for the OP, is a different case.

I understand tax and why it happens. I’m a tad surprised that the same doesn’t happen with any ‘unexpected’ large windfall. Apart from CGT where it is declared. I guess because it isn’t coming via PAYE. The more sensible approach would be to tax it immediately at the appropriate higher rates, or not at all and rely on self assessment. 

I can personally see why someone who doesn’t understand tax will have been confused.

Hendog

AlanP_2 said:

Was that your first taxable withdrawal form that pension?

If it was, and the way PAYE systems work, is that the provider had not been given a tax code for you by HMRC at the point of withdrawal. They inform HMRC you have made a withdrawal and HMRC generate a tax code and send it to them for use in the future.

£55k looks like 20% tax and on that level of withdrawal the amount due would be much higher. 


Go back through your "pension payslips" / P60 and post the exact details on here along with what you filled in on your tax return and someone can at least double check the calculations for you. Don't forget any other taxable income that needs to be included as well.

I have posted figures on here now. Just released how to reply to a message 

Hendog

Hoenir said:

Hendog said:

I am trying to sort the under payment out that’s why I have posted on here. 

What I am asking is should off a BR tax code been used by either my pension company or HMRC on withdrawing the lump sum as all I can find is that it should’ve been done as emergency tax 

In performing the transaction you presumably were aware of the tax implications. When the amount you received was higher than you were expecting. Didn't you think to query it.  

I did query it and my pension company said it was right. I did not query the tax code as I know nothing about tax codes. 

molerat

xylophone said:

Given the amount of the withdrawal, it is astonishing that the pension company did not proceed as here

https://adviser.royallondon.com/technical-central/pensions/case-studies/emergency-rate-income-tax/

In view of his other income, the deduction would still not have been correct but the OP would be in a rather better position.

Their flow chart would have pointed them to which code to use. There are many instances where BR is the mandated code, but as you say, 1257X would have likely given a better outcome with £123.5K tax deducted and a refund due.  What idiot said "tax doesn't have to be taxing" ?

RogerPensionGuy

An interesting story here and very unwanted for the OP.

I have heard a fair few stories of people starting pension payments and they weren't and were not made aware of a few problem outcomes like paying the correct tax and not being aware of the MPAA.

Looking at the opening poster, I just see 400Kish. Take 100Kish Tax Free, 50Kish @ 20% Tax and 250Kish @ 40% Tax so Tax looks like 110Kish.

To the opening poster, did you think the Tax was correct when getting the money?

As your pension people said it was correct, I do wonder if they will come good or maybe meet you half way with the current Tax bill.

Hendog

RogerPensionGuy said:

An interesting story here and very unwanted for the OP.

I have heard a fair few stories of people starting pension payments and they weren't and were not made aware of a few problem outcomes like paying the correct tax and not being aware of the MPAA.

Looking at the opening poster, I just see 400Kish. Take 100Kish Tax Free, 50Kish @ 20% Tax and 250Kish @ 40% Tax so Tax looks like 110Kish.

To the opening poster, did you think the Tax was correct when getting the money?

As your pension people said it was correct, I do wonder if they will come good or maybe meet you half way with the current Tax bill.

Hi yes I did think the tax was right as that’s what the pension company said. I thought I would have paid more that’s why I ask them. 

At the moment I have asked HMRC to investigated it as to why it was done on a BR code as I believe from what I have now researched and been told it should have been done as emergency taxed, and then the overpaid tax I should’ve been able to claim back.  I am waiting to see what HMRC come back with and then decide what to do. 

I’ve been told not to contact the pension company as HMRC should investigate it 1st and if the pension company are at fault HMRC deal with it. 

Would be very nice if they did offer to pay some off it if they are at fault but it also could be HMRC at fault or it could be all correct and I have to pay it.

TheSpectator

Hendog said:

RogerPensionGuy said:

An interesting story here and very unwanted for the OP.

I have heard a fair few stories of people starting pension payments and they weren't and were not made aware of a few problem outcomes like paying the correct tax and not being aware of the MPAA.

Looking at the opening poster, I just see 400Kish. Take 100Kish Tax Free, 50Kish @ 20% Tax and 250Kish @ 40% Tax so Tax looks like 110Kish.

To the opening poster, did you think the Tax was correct when getting the money?

As your pension people said it was correct, I do wonder if they will come good or maybe meet you half way with the current Tax bill.

Hi yes I did think the tax was right as that’s what the pension company said. I thought I would have paid more that’s why I ask them. 

At the moment I have asked HMRC to investigated it as to why it was done on a BR code as I believe from what I have now researched and been told it should have been done as emergency taxed, and then the overpaid tax I should’ve been able to claim back.  I am waiting to see what HMRC come back with and then decide what to do. 

I’ve been told not to contact the pension company as HMRC should investigate it 1st and if the pension company are at fault HMRC deal with it. 

Would be very nice if they did offer to pay some off it if they are at fault but it also could be HMRC at fault or it could be all correct and I have to pay it.

How can HMRC be at fault if they hadn't issued a tax code? Technically the pension provider should have used the emergency tax code (personal allowance on a week/month 1 basis) and there are rare circumstances where an employer can be held liable for an under-deduction but if HMRC accept the error was made in good faith (and the prob will) then you need to start thinking now how you will repay the amount owing.

Personally I don't see how you could think that amount of tax deducted would remotely come close to being the final liability.

Hoenir

Hendog said:

Hoenir said:

Hendog said:

I am trying to sort the under payment out that’s why I have posted on here. 

What I am asking is should off a BR tax code been used by either my pension company or HMRC on withdrawing the lump sum as all I can find is that it should’ve been done as emergency tax 

In performing the transaction you presumably were aware of the tax implications. When the amount you received was higher than you were expecting. Didn't you think to query it.  

I did query it and my pension company said it was right. I did not query the tax code as I know nothing about tax codes. 

I was referring to the decision process before effecting the withdrawl. Surely you performed the sums to determine the net amount you'd receive. Factoring in any other taxable income you'd receive during the year. The PAYE system itself has been in place for many decades. 

dunstonh

I have heard a fair few stories of people starting pension payments and they weren't and were not made aware of a few problem outcomes like paying the correct tax and not being aware of the MPAA.

The information is given.  But you have to read it.   They also recommend you seek advice.   But its your choice whether you seek it or not.  They also point to pensionwise but again, its your choice whether to use it or not.

Would be very nice if they did offer to pay some off it if they are at fault but it also could be HMRC at fault or it could be all correct and I have to pay it.

HMRC are not at fault.  They first they would have heard about it is when the P45 information was sent to them.  Long after the event.

molerat

TheSpectator said:

Hendog said:

RogerPensionGuy said:

An interesting story here and very unwanted for the OP.

I have heard a fair few stories of people starting pension payments and they weren't and were not made aware of a few problem outcomes like paying the correct tax and not being aware of the MPAA.

Looking at the opening poster, I just see 400Kish. Take 100Kish Tax Free, 50Kish @ 20% Tax and 250Kish @ 40% Tax so Tax looks like 110Kish.

To the opening poster, did you think the Tax was correct when getting the money?

As your pension people said it was correct, I do wonder if they will come good or maybe meet you half way with the current Tax bill.

Hi yes I did think the tax was right as that’s what the pension company said. I thought I would have paid more that’s why I ask them. 

At the moment I have asked HMRC to investigated it as to why it was done on a BR code as I believe from what I have now researched and been told it should have been done as emergency taxed, and then the overpaid tax I should’ve been able to claim back.  I am waiting to see what HMRC come back with and then decide what to do. 

I’ve been told not to contact the pension company as HMRC should investigate it 1st and if the pension company are at fault HMRC deal with it. 

Would be very nice if they did offer to pay some off it if they are at fault but it also could be HMRC at fault or it could be all correct and I have to pay it.

How can HMRC be at fault if they hadn't issued a tax code? Technically the pension provider should have used the emergency tax code (personal allowance on a week/month 1 basis) and there are rare circumstances where an employer can be held liable for an under-deduction but if HMRC accept the error was made in good faith (and the prob will) then you need to start thinking now how you will repay the amount owing.

Personally I don't see how you could think that amount of tax deducted would remotely come close to being the final liability.

On what grounds do you state that ?  There are many types of pension lump sums that dictate BR/BRX is the tax code to be used, it is just that the most common one with personal pensions is 1257X.