State pension

geoffb222

Every year I get a letter from the Department for Work & Pensions telling me the weekly amount I will be getting. If this is multiplied by 52 you get the amount I should receive in the full tax year and this is also the amount that the Department for Work & Pensions are telling HM Revenue & Customs that I have been paid. But the first payment is always quite a bit short, the other 12 are correct (4 times the weekly amount). Because of this I think that I am being underpaid by the Department for Work & Pensions but paying tax on the amount they have underpaid me. Am I right?.

Marcon

geoffb222 said:

Every year I get a letter from the Department for Work & Pensions telling me the weekly amount I will be getting. If this is multiplied by 52 you get the amount I should receive in the full tax year and this is also the amount that the Department for Work & Pensions are telling HM Revenue & Customs that I have been paid. But the first payment is always quite a bit short, the other 12 are correct (4 times the weekly amount). Because of this I think that I am being underpaid by the Department for Work & Pensions but paying tax on the amount they have underpaid me. Am I right?.

No, just one of the very many people who are confused by the system!

The first payment in the new tax year will always be less because state pensions are (a) paid in arrears so some will paid at the pre-increase rate and (b) increases are applied from the Monday coincident with, or next following, 6 April.

However, the amount chargeable to tax is the amount to which you are entitled during a tax year, not the amount actually received. Bearing in mind that pensions are paid in arrears, that means discounting a few weeks at the start of the tax year (at the 'old' rate) and adding in a few extra weeks at the end (at the 'new' rate), albeit you won't receive this until after the tax year end.

LHW99

Although there can be a hiccup if your pension starts mid-year. When mine began HMRC wanted to tax a full year's payment amount, when only 8 months were actually received.

After that it works as Marcon says.

Dazed_and_C0nfused

LHW99 said:

Although there can be a hiccup if your pension starts mid-year. When mine began HMRC wanted to tax a full year's payment amount, when only 8 months were actually received.

After that it works as Marcon says.

If you are referring to a new tax code after your State Pension started then providing you were already liable to tax before the State Pension started and the new tax code was issued on a non-cumulative basis then that's exactly what should happen.

p00hsticks

LHW99 said:

Although there can be a hiccup if your pension starts mid-year. When mine began HMRC wanted to tax a full year's payment amount, when only 8 months were actually received.

After that it works as Marcon says.

I suspect if you look back you'll find that although your tax code changed to take into account the state pension amount that would be paid annually, it was also amended to state that deductions should be made on an M1 (non-cumulative) basis, meaning that each months tax liability is worked out in isolation, and that it was only applied at the point in the year when you started to receive your state pension.

This means you'll have paid the correct amount of tax for the total income you received during the year. 

LHW99

Tax codes for me have been a rather movable (& incorrect) feast. They managed to give my occupation pension a code in a following year that meant no tax at all was collected, despite it and my SP being several thousand above PA. As I also do SA, everything worked out in the end.