New Tax Code -State Pension related

sheslookinhot

Hello,

Today I have received notification of a new Tax Code from HMRC. The new code is S22LX from S1257L. I am assuming this is in preparation of commencing the full State Pension this month. 
My personnel allowance, £12570, drops by £1200, which is the annual SP I will receive. (There will be some tax to pay on savings interest).

However, this tax year, I will receive about £9200 of State Pension. Should my tax code therefore have been around S34LX.

I realise it will sort it self out in time, just curious.

Linton

sheslookinhot said:

Hello,

Today I have received notification of a new Tax Code from HMRC. The new code is S22LX from S1257L. I am assuming this is in preparation of commencing the full State Pension this month. 
My personnel allowance, £12570, drops by £1200, which is the annual SP I will receive. (There will be some tax to pay on savings interest).

However, this tax year, I will receive about £9200 of State Pension. Should my tax code therefore have been around S34LX.

I realise it will sort it self out in time, just curious.

Tax codes work on a per monthly basis.  The reduction in total tax arising from you only receiving  SP for part of the year comes from the new tax code not being applied retrospectively.

molerat

Your tax code has dropped by 12570 - 220 / 12 = £1029 per month x 9 = £9261 for the remainder of the year.  9 months because it was issued in M4 so 9 possible pay months remaining. This will likely leave you owing tax on £1029 at the end of year.

jem16

sheslookinhot said:

Hello,

Today I have received notification of a new Tax Code from HMRC. The new code is S22LX from S1257L. I am assuming this is in preparation of commencing the full State Pension this month. 
My personnel allowance, £12570, drops by £1200, which is the annual SP I will receive. (There will be some tax to pay on savings interest).

However, this tax year, I will receive about £9200 of State Pension. Should my tax code therefore have been around S34LX.

I realise it will sort it self out in time, just curious.

Presumably you meant S340LX and not S34LX as £12570 minus £9200 is £3370 giving a tax code of 337L.

However it’s not the way it operates. As the X at the end of the tax code signifies, HMRC uses a full year of state pension and then asks the employer to operate it on a non-cumulative tax basis so the earlier months are ignored and each month going forward is looked at in isolation. So your tax will only take the correct amount for each month but may be slightly out at the end of the tax year. 

This article is useful. 

https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/how-tax-collected-state-pension?fbclid=IwQ0xDSwMAI3pleHRuA2FlbQIxMQABHnnM4atTAX5TEn1nrin7zG4P-bnxLB5WVCYo9E5BkUxFEEmOv2VgEcYKB0kd_aem_1X_8Pt4EE_8vcrynzKUJbA#:~:text=reconcile%20the%20record.-,Collection%20of%20tax%20through%20self%20assessment,to%20be%20in%20self%20assessment

FrugaiMacDugal

molerat said:

Your tax code has dropped by 12570 - 220 / 12 = £1029 per month x 9 = £9261 for the remainder of the year.  9 months because it was issued in M4 so 9 possible pay months remaining. This will likely leave you owing tax on £1029 at the end of year.

The State Pension is paid every four weeks, does that make a difference to your calculations?

molerat

FrugaiMacDugal said:

molerat said:

Your tax code has dropped by 12570 - 220 / 12 = £1029 per month x 9 = £9261 for the remainder of the year.  9 months because it was issued in M4 so 9 possible pay months remaining. This will likely leave you owing tax on £1029 at the end of year.

The State Pension is paid every four weeks, does that make a difference to your calculations?

Nothing to do with the SP, the code is used against other income.  The calculation is simply the additional amount the change of code will tax over the forthcoming months.