Month 1 pension tax code - good news

Qyburn

You'd hve been taxed more if they used a M1 code.

Qyburn

molerat said:

Qyburn said:

You'd hve been taxed more if they used a M1 code.

They have used an M1 code ........ which means I would pay too much tax rather than way too much tax on a cumulative code.  An M1 code used correctly will prevent too much tax being taken.

Have I replied to the wrong person? On a cumulative code £2,700 drawn in June would be taxed using 3/12 of the tax free allowance on the code. A Month 1 code would mean it always uses only 1/12 of the allowance, no matter which month it actually falls in.

Qyburn

Payment in January using a cumulative code would use 10/12 of tax free allowance. Using an M1 code it will only use 1/12, hence deduct more tax.

For a single payment, just one in the tax year, an M1 code will deduct the same as cumulative only if the payment is in the first month. Any other time in the year M1 will deduct more than cumulative.

Scot_39

molerat said:

dont_use_vistaprint said:

Dazed_and_C0nfused said:

Smudgeismydog said:

Scrapping the emergency tax on month 1 looks like good news

https://www.yourmoney.com/household-bills/scandalous-tax-code-system-for-pensioners-ditched-as-refunds-reach-1-4bn/

I think you have misunderstood what is happening.

Nothing appears to be changing for the first payment.  It is only after that has been reported that things will change, with HMRC seemingly going to be issuing more cumulative tax codes for second pension payments onwards.

Which will help some people, but not those who only take a single payment.

This sounds like great news and about time, it’s scandalous that they use a tax system designed for regular weekly or monthly wages, on a saving system that’s been reformed so you can access your money however you like.

I think you are totally misunderstanding what is going to happen.  All they are doing is making sure an appropriate cumulative code will be issued promptly which already happens in the vast majority of cases.  This will not change excess tax being taken on first withdrawals and mid year large withdrawals.  All it will do is ensure that the tax situation should be correct at the March payment, something that is already happening for the vast majority.  They are not making a major overhaul to the tax system, someone seems to have made a major story out of a minor tweak.

Not my experience - when started taking a pension late in tax year - after admittedly a period with no PAYE taxation in early part of year - and was put on 1257 / month 1 basis - and not what it actually says in one envisaged situation still today on the HMRC website.

Actaully they got the 1st code wrong - and my standard code was a second emergency code in 2 months - 1257L/M1 iirc.

The default HMRC position was in my case not to move people taking monthly pension payments off the emergency  / month 1 status until the start of the next tax year.

They definitely seemed to want to follow the following for me

From

https://www.gov.uk/tax-codes/emergency-tax-codes

"The emergency tax code will stay in place until the end of the tax year. This means you’ll pay the right amount of tax for the current tax year. In the new tax year, HMRC should put you on a non-emergency tax code"

And on a month 1 code - emergency tax basis - you get just a 12th of each tax band per month

Lift even just £1048 (£12570/12) in the tax year - in one month - on a month 1 code - you pay tax.

Lift more than £4189 in one month - you pay 40% tax on it - for the month.

And you don't get it back via PAYE unless you are given a cumulative (normal) non emergency tax code before a final payment in the tax year when you get the full 12/12ths cumulative (Mar payroll for most folk ?)

Pensions different from employment - when tax codes are regularly reissued.

 

And that means the new system will still not work for a one off payment - as you need a second payroll run to use the new tax code for the pension company to refund you.

They also expect people to now wait for P800 personal calcs - to correct the problem - can by 3-6 months into tax year - before done - and then they - based on my sisters - seem to push / want to adjust via tax codes - which delays the refund even further.

And heaven forbid you get an error on one of those - as in past taken months to resolve.