Overpaid Tax - how to get it back

Pat38493

I have 2 income streams during this year - one is an employment income stream and one is a DB pension.

HMRC has been taxing the entire pension at 40%, and also assuming some 40% tax on the employer pension.

However - I have just finished work (hooray!) and my employment will officially end at the end of October.  This means that actually I won't have any 40% tax to pay in tax year 25/26 (unless I decide to go back to work which is unlikely).

Can I get the tax situation rectified simply by updating the expected income amounts on the HMRC portal?  Does this mean my overpaid tax will be automatically refunded through the DB pension payslips?  Do I have to wait until my P45 is issued before doing this?

Dazed_and_C0nfused

Pat38493 said:

I have 2 income streams during this year - one is an employment income stream and one is a DB pension.

HMRC has been taxing the entire pension at 40%, and also assuming some 40% tax on the employer pension.

However - I have just finished work (hooray!) and my employment will officially end at the end of October.  This means that actually I won't have any 40% tax to pay in tax year 25/26 (unless I decide to go back to work which is unlikely).

Can I get the tax situation rectified simply by updating the expected income amounts on the HMRC portal?  Does this mean my overpaid tax will be automatically refunded through the DB pension payslips?  Do I have to wait until my P45 is issued before doing this?

No.

You will need to wait for your P45 and check your Personal Tax Account to make sure HMRC have received those details.

Then you need to call HMRC and make sure your pension is your main source of PAYE income (from what you posted it isn't at the moment).  And ask them them to send the P45 pay and tax details to your pension company, so they can factor in those earnings and tax deducted when they make the next pension payment.

You also need to consider if the change to your total income will impact anything in your tax code.  If you are currently on the emergency code (1257L) that probably won't be an issue.

Pat38493

Dazed_and_C0nfused said:

Pat38493 said:

I have 2 income streams during this year - one is an employment income stream and one is a DB pension.

HMRC has been taxing the entire pension at 40%, and also assuming some 40% tax on the employer pension.

However - I have just finished work (hooray!) and my employment will officially end at the end of October.  This means that actually I won't have any 40% tax to pay in tax year 25/26 (unless I decide to go back to work which is unlikely).

Can I get the tax situation rectified simply by updating the expected income amounts on the HMRC portal?  Does this mean my overpaid tax will be automatically refunded through the DB pension payslips?  Do I have to wait until my P45 is issued before doing this?

No.

You will need to wait for your P45 and check your Personal Tax Account to make sure HMRC have received those details.

Then you need to call HMRC and make sure your pension is your main source of PAYE income (from what you posted it isn't at the moment).  And ask them them to send the P45 pay and tax details to your pension company, so they can factor in those earnings and tax deducted when they make the next pension payment.

You also need to consider if the change to your total income will impact anything in your tax code.  If you are currently on the emergency code (1257L) that probably won't be an issue.

Hi - sorry to reply to this after so long as I was away.

I called HMRC after my P45 was issued, and they have updated the tax code but they updated the tax code on the pension stream to 791L, due to a tax underpayment in the prior year that was previously allocated to the employment income.  

However I will have already paid too much tax against the previous employment workstream in the current tax year as it was expected to be more than £50270 on its own - updating the tax code to 791L will not fix this as far as I can tell?

The DB pension previously had tax code D0 and the employment had 981L.

The prior year tax underpayment was £1134.  To fix this they had previously adjusted the gross by £2835 in the employment, but when they moved this adjustment to the pension they mysteriously changed it to £4655 - this does not feel correct either.

As far as I can tell this will result in my getting some of my overpaid tax back, but certainly not all of it as I will have overpaid on both the pension and the employment (which was expected to be more than £50270 on its own).

Worst case, will this all get rectified automatically at the end of the tax year?

Albermarle

Worst case, will this all get rectified automatically at the end of the tax year?

Normally yes.
If you fill in a self assessment soon after the end of the tax year, you should get a rebate reasonably quickly ( Hopefully)
If you are on simple assessment, where your tax is calculated automatically by HMRC , it will be some months after the end of he tax year.

Dazed_and_C0nfused

Pat38493 said:

Dazed_and_C0nfused said:

Pat38493 said:

I have 2 income streams during this year - one is an employment income stream and one is a DB pension.

HMRC has been taxing the entire pension at 40%, and also assuming some 40% tax on the employer pension.

However - I have just finished work (hooray!) and my employment will officially end at the end of October.  This means that actually I won't have any 40% tax to pay in tax year 25/26 (unless I decide to go back to work which is unlikely).

Can I get the tax situation rectified simply by updating the expected income amounts on the HMRC portal?  Does this mean my overpaid tax will be automatically refunded through the DB pension payslips?  Do I have to wait until my P45 is issued before doing this?

No.

You will need to wait for your P45 and check your Personal Tax Account to make sure HMRC have received those details.

Then you need to call HMRC and make sure your pension is your main source of PAYE income (from what you posted it isn't at the moment).  And ask them them to send the P45 pay and tax details to your pension company, so they can factor in those earnings and tax deducted when they make the next pension payment.

You also need to consider if the change to your total income will impact anything in your tax code.  If you are currently on the emergency code (1257L) that probably won't be an issue.

Hi - sorry to reply to this after so long as I was away.

I called HMRC after my P45 was issued, and they have updated the tax code but they updated the tax code on the pension stream to 791L, due to a tax underpayment in the prior year that was previously allocated to the employment income.  

However I will have already paid too much tax against the previous employment workstream in the current tax year as it was expected to be more than £50270 on its own - updating the tax code to 791L will not fix this as far as I can tell?

The DB pension previously had tax code D0 and the employment had 981L.

The prior year tax underpayment was £1134.  To fix this they had previously adjusted the gross by £2835 in the employment, but when they moved this adjustment to the pension they mysteriously changed it to £4655 - this does not feel correct either.

As far as I can tell this will result in my getting some of my overpaid tax back, but certainly not all of it as I will have overpaid on both the pension and the employment (which was expected to be more than £50270 on its own).

Worst case, will this all get rectified automatically at the end of the tax year?

I think you have misunderstood what is happening.

If the 791L code has been issued on a cumulative basis with details of the earnings from your old job being sent to the pension company then when they first use that code you will start getting credit for any 40% tax you paid whilst employed.

You can use a tax calculator site like listentotaxman to see how your future tax deductions (or refunds) will play out each month.  You do need to know the expected future (taxable) pension payments to do this but I presume you do know those figures.

The tax code deduction needed to collect £1,134 in underpaid tax would be £2,835 whilst you were expected to be a higher rate payer (2,835 x 40% = 1,134).

If you are now a basic rate payer then the deduction would normally need to be £5,670 (x 20% = 1,134).  But if collection of that underpayment takes you into the next tax band you need a figure in-between the two to try and collect 1,134, which is presumably why you now have £4,655.
NB.  Having an underpayment in your tax code does NOT make you a higher rate payer, it's just relevant because employers have to use fixed tax tables.

You can check your Personal Tax Account to see what figures HMRC have used to estimate your pension for the current tax year, that should help you understand why it is £4,655.

And ultimately tax codes are only ever provisional, any extra tax you owe or HMRC owe you will always be sorted once the the tax year has ended, either by a tax return (if you need to file one for some reason) or HMRC automatic annual review next summer.

Pat38493

Dazed_and_C0nfused said:

Pat38493 said:

Dazed_and_C0nfused said:

Pat38493 said:

I have 2 income streams during this year - one is an employment income stream and one is a DB pension.

HMRC has been taxing the entire pension at 40%, and also assuming some 40% tax on the employer pension.

However - I have just finished work (hooray!) and my employment will officially end at the end of October.  This means that actually I won't have any 40% tax to pay in tax year 25/26 (unless I decide to go back to work which is unlikely).

Can I get the tax situation rectified simply by updating the expected income amounts on the HMRC portal?  Does this mean my overpaid tax will be automatically refunded through the DB pension payslips?  Do I have to wait until my P45 is issued before doing this?

No.

You will need to wait for your P45 and check your Personal Tax Account to make sure HMRC have received those details.

Then you need to call HMRC and make sure your pension is your main source of PAYE income (from what you posted it isn't at the moment).  And ask them them to send the P45 pay and tax details to your pension company, so they can factor in those earnings and tax deducted when they make the next pension payment.

You also need to consider if the change to your total income will impact anything in your tax code.  If you are currently on the emergency code (1257L) that probably won't be an issue.

Hi - sorry to reply to this after so long as I was away.

I called HMRC after my P45 was issued, and they have updated the tax code but they updated the tax code on the pension stream to 791L, due to a tax underpayment in the prior year that was previously allocated to the employment income.  

However I will have already paid too much tax against the previous employment workstream in the current tax year as it was expected to be more than £50270 on its own - updating the tax code to 791L will not fix this as far as I can tell?

The DB pension previously had tax code D0 and the employment had 981L.

The prior year tax underpayment was £1134.  To fix this they had previously adjusted the gross by £2835 in the employment, but when they moved this adjustment to the pension they mysteriously changed it to £4655 - this does not feel correct either.

As far as I can tell this will result in my getting some of my overpaid tax back, but certainly not all of it as I will have overpaid on both the pension and the employment (which was expected to be more than £50270 on its own).

Worst case, will this all get rectified automatically at the end of the tax year?

I think you have misunderstood what is happening.

If the 791L code has been issued on a cumulative basis with details of the earnings from your old job being sent to the pension company then when they first use that code you will start getting credit for any 40% tax you paid whilst employed.

You can use a tax calculator site like listentotaxman to see how your future tax deductions (or refunds) will play out each month.  You do need to know the expected future (taxable) pension payments to do this but I presume you do know those figures.

The tax code deduction needed to collect £1,134 in underpaid tax would be £2,835 whilst you were expected to be a higher rate payer (2,835 x 40% = 1,134).

If you are now a basic rate payer then the deduction would normally need to be £5,670 (x 20% = 1,134).  But if collection of that underpayment takes you into the next tax band you need a figure in-between the two to try and collect 1,134, which is presumably why you now have £4,655.
NB.  Having an underpayment in your tax code does NOT make you a higher rate payer, it's just relevant because employers have to use fixed tax tables.

You can check your Personal Tax Account to see what figures HMRC have used to estimate your pension for the current tax year, that should help you understand why it is £4,655.

And ultimately tax codes are only ever provisional, any extra tax you owe or HMRC owe you will always be sorted once the the tax year has ended, either by a tax return (if you need to file one for some reason) or HMRC automatic annual review next summer.

Regarding the part in bold - the pension was already in payment before I left the old job with tax code D0 (now changed to 791L) since January 2025.  Therefore they did not receive the details of earnings from the old job (at least not from me).  Am I supposed to send that to them?

molerat

HMRC would not have randomly gone from £0 allowance and 40% tax to £7910 allowance against that income without some sort of trigger so RTR would most likely have already informed them of your leaving the employment.  Is the code a straight 791L or is there an X suffix ?

Pat38493

molerat said:

HMRC would not have randomly gone from £0 allowance and 40% tax to £7910 allowance against that income without some sort of trigger so RTR would most likely have already informed them of your leaving the employment.  Is the code a straight 791L or is there an X suffix ?

HMRC definitely had the P45 as I can see it reflected "your employment x ended" in my personal tax file.  They were aware of that part.  When I called them, the lady that I spoke to said - oh yes no problem and made changes which only took about 30 seconds, so I assume she had some kind of automated calculation for it.  I told her that my employment has ended, the pension that is already in payment is my primary and only continuous income stream going forward, and any other future income will be flexible and/or temporary.

The 791L does not have a suffix on the HMRC website.

I guess what Dazed is saying might be closer and maybe the 791L is the best they can do until the year is closed.  My forecasted total taxable income (my own forecast) for 25/26 is about £46.7K plus a little bit for an inflation pension increase in January, so it will be quite close to the 50270 higher rate tax bracket (also there are £661 of savings interest showing up there already which by the way does not correspond to my records - mine are £558 so far and that includes money from uninvested cash in GIA accounts which I doubt they are aware of).

molerat

Going from D0 to 791L cumulative means you are going to get a fairly big payday next time.  If your pension is in excess of £7910 pa you should see at least an £1848 tax refund next payday (plus £1.40 for every £ the monthly pension is above £660) and receive at least £264 more each month going forward (plus 20p for every £ the monthly pension is above £660).

Pat38493

molerat said:

Going from D0 to 791L cumulative means you are going to get a fairly big payday next time.  If your pension is in excess of £7910 pa you should see at least an £1848 tax refund next payday (plus £1.40 for every £ the monthly pension is above £660) and receive at least £264 more each month going forward (plus 20p for every £ the monthly pension is above £660).

Agreed.  However I am not sure that the situation at the end of the tax year will be fully correct, as I am pretty sure I paid too much tax on the employment income.

According to my calculations, I have already paid nearly £2K too much tax in total this year, even if I paid zero tax on all pension income going forward (the pension is £13320 per year).  791L will not result in me paying zero tax on months after December I don't think?  Therefore I will still have some overpaid tax even at tax year end?

For clarity, the amounts I earned this year in total:
- £33310 taxable income on the employment income which had a code of 981L before I left. (this is what was reported on the P45/last payslip, net of pension contributions, medical insurance etc).
- £13320 (plus inflation increase from January) DB pension which was on D0 now changed to 791L.
- Estimated about £900 of savings income by year end.
- Underpaid tax from 24/25 as discussed above of £1134.
- No further income or pension withdrawals planned till April next year.
- Total tax deducted by employer at end of employment £6635
- Total tax deducted by pension at last payslip £3108

Dazed_and_C0nfused

If they have a cumulative tax code and the previous earnings (and tax paid) details your pension company can make tax refunds as part of your pension payments, just like an employer can.

You really need to check with HMRC if they have told the pension company about your previous earnings. If not you might be in a much worse position than you expected.