HMRC Debt

bullinn1

 I do not understand, I am 74 and have not had to think about tax on my pensions for years figuring that HMRC and the Pension Service were handling it. However I have now been asked for £670 for each of the last two tax years ie £1,340.

In an attempt to keep this brief and after several conversations with HMRC the only explanation is that my pension has increased but my tax-free allowance has not.

The vey helpful man on the telephone said many millions of elderly are paying tax on their pensions for the first time and that the tax cannot be deducted at source so we will all have to wait for a brown envelope with a demand for a lump sum payment at the end of every year. It seems it cannot be “coded out”. Why do I have to get involved ?

Flugelhorn

because the state pension or savings interest cannot have a code attached to it so any tax due has to come another source eg private pension

Dazed_and_C0nfused

rogertb said:

 I do not understand, I am 74 and have not had to think about tax on my pensions for years figuring that HMRC and the Pension Service were handling it. However I have now been asked for £670 for each of the last two tax years ie £1,340.

In an attempt to keep this brief and after several conversations with HMRC the only explanation is that my pension has increased but my tax-free allowance has not.

The vey helpful man on the telephone said many millions of elderly are paying tax on their pensions for the first time and that the tax cannot be deducted at source so we will all have to wait for a brown envelope with a demand for a lump sum payment at the end of every year. It seems it cannot be “coded out”. Why do I have to get involved ?

Is this the State Pension?  Or maybe the State Pension and a small annuity/company pension/personal pension?

If so you are seeing the results of what is commonly referred to as "fiscal drag".  The Personal Allowance has remained the same for a few years now but (most) pensions increase each year so as the pensions increase and the Personal Allowance remains the same you have tax (or more tax) to pay.

When this can't be collected via your tax code then HMRC will need you to pay it direct to them.

You would need to post some figures if you are unsure if the amounts are correct.  But they almost certainly are.

NB.  DWP don't deduct tax at source from the State Pension so that isn't an option.

Dizzycap

That seems very strange to me that it can not be "coded out" because my mother who gets the state pension along with a private pension (pp) has underpaid tax deducted at source through her pp, which by the way, also increases each year. She usually gets a new tax code in January with a breakdown of the tax to be deducted for the year which is collected monthly via her pp before she receives her monthly pp payment.

In addition, I took my pp in August, received a new tax code in October and also have any underpaid tax taken at source from my pp before my pp monthly payment is received. HMRC gave me a breakdown of tax payments with my new tax code.

So clearly there is a way, it just needs someone to get off their arris and calculate it or the system to calculate it, which it does because HMRC know in advance how much pp(s) you will be receiving along with any increase. This is how HMRC is able to send you a tax bill in the first place

Personally, I'd be calling HMRC back and asking them to explain why thay can't collect tax at source from your pp(s) and why they can't provide you with a new tax code each year when your pp increases are declared by your pp company (ies) to HMRC, which they have to do by law.

Flugelhorn

Dizzycap said:

That seems very strange to me that it can not be "coded out" because my mother who gets the state pension along with a private pension (pp) has underpaid tax deducted at source through her pp, which by the way, also increases each year. She usually gets a new tax code in January with a breakdown of the tax to be deducted for the year which is collected monthly via her pp before she receives her monthly pp payment.

In addition, I took my pp in August, received a new tax code in October and also have any underpaid tax taken at source from my pp before my pp monthly payment is received. HMRC gave me a breakdown of tax payments with my new tax code.

So clearly there is a way, it just needs someone to get off their arris and calculate it or the system to calculate it, which it does because HMRC know in advance how much pp(s) you will be receiving along with any increase. This is how HMRC is able to send you a tax bill in the first place

Personally, I'd be calling HMRC back and asking them to explain why thay can't collect tax at source from your pp(s) and why they can't provide you with a new tax code each year when your pp increases are declared by your pp company (ies) to HMRC, which they have to do by law.

depends on whether the OP has a private pension 

Dazed_and_C0nfused

Dizzycap said:

That seems very strange to me that it can not be "coded out" because my mother who gets the state pension along with a private pension (pp) has underpaid tax deducted at source through her pp, which by the way, also increases each year. She usually gets a new tax code in January with a breakdown of the tax to be deducted for the year which is collected monthly via her pp before she receives her monthly pp payment.

In addition, I took my pp in August, received a new tax code in October and also have any underpaid tax taken at source from my pp before my pp monthly payment is received. HMRC gave me a breakdown of tax payments with my new tax code.

So clearly there is a way, it just needs someone to get off their arris and calculate it or the system to calculate it, which it does because HMRC know in advance how much pp(s) you will be receiving along with any increase. This is how HMRC is able to send you a tax bill in the first place

Personally, I'd be calling HMRC back and asking them to explain why thay can't collect tax at source from your pp(s) and why they can't provide you with a new tax code each year when your pp increases are declared by your pp company (ies) to HMRC, which they have to do by law.

One common reason is that employers and pension payers are not allowed to deduct more than 50% in tax.

So if you have a small private pension and largish State Pension it simply isn't possible to collect all of the tax via the tax code.

For example if the private pension is £1,000 and the amount of State pension meant the total tax payable was £750 then £500 could be collected via the tax code but there would be £250 extra which would have to be paid direct to HMRC.

There are also other rules HMRC apply which means coming out isn't always something they will do.

bullinn1

Thanks D&C and Dizzycap I have state pension and several small company pensions totalling (£1,350 net/month) and I understand the principal of fiscal drag (though I didn’t know it had a name, thanks) what I don’t understand is why the adjustment cannot be made at source ? I have a message from HMRC saying they will collect over 12 months but the HMRC chap said that that often happens, the arrangement is then checked by another department who might decide I cannot afford to lose £50/month and the arrangement is cancelled … craziness. He could only suggest I speak to my MP and also speak to the debt management team and come to an arrangement about repayment ! He confirmed it was “not good” and they’re flooded with calls like mine.

bullinn1

Again the guy on the phone said I owe £1,300 yet:

Qyburn

Dizzycap said:

That seems very strange to me that it can not be "coded out" because my mother who gets the state pension along with a private pension (pp) has underpaid tax deducted at source through her pp

You're assuming the OP has a private pension operated through PAYE. I can't see where that's confirmed. 

flaneurs_lobster

You should take that post down - bad idea to post your real name.

Qyburn

rogertb said:

 I do not understand, I am 74 and have not had to think about tax on my pensions for years figuring that HMRC and the Pension Service were handling it. However I have now been asked for £670 for each of the last two tax years ie £1,340.

In an attempt to keep this brief and after several conversations with HMRC the only explanation is that my pension has increased but my tax-free allowance has not.

Do you have just the one pension, the State Pension? How much was it, roughly, for each of those two years?

Tax of £670 suggests income of around £15,900 per year, or £306 per week. High but not impossible if there was a lot of SERPS accrued. But I would have expected that weekly figure to have increased from 2022/23 to 2023/24.