DWP pension advice to HMRC leads to wrong tax code

HugoFS

I retired in 2023 and began to draw a private and state pensions late in 2024-25.  The aggregate gross income from both these pensions came to under £11K and I had no other income for the year.  When I began to draw the state pension in Dec 24, DWP advised HMRC my annual income entitlement, although I would only draw 4 payments out of 13 in the financial year.  HMRC therefore advised a tax code to my private pension provider to begin taking tax, on the assumption that I would receive an entire year's state pension within the financial year.

I waited until now to contact HMRC, in the expectation of receiving a P800 letter advising a tax refund to be due.  When none came, I called them today.  The HMRC agent was insistent that the tax taken was correct, and there was nothing to be done.  He did not accept that I should not be paying any tax at all on a combined income of less than the basic rate threshold, with no other complications.  He simply repeated that the tax code could not be incorrect as it was based on DWP advice and there is no process to review and amend it based on reality.

I have requested an escalation, but where do I go from here?  What is the correct route?  Should DWP have advised the actual income and not the annualised entitlement?  Do I need to get them to correct their mistake?  Or should HMRC look more closely at my actual income and ignore the DWP figure? 

Isthisforreal99

You need to understand the difference between a cumulative and non-cumulative tax code. A non-cumulative tax code with the annual amount of state pension does not mean you have paid tax on the annual amount. 

What was your actual state pension entitlement and how much was your private pension and how much tax did you pay.

HugoFS

First time I've heard that nomenclature but it sounds meaningful, thank you.  However, the second part of your comment is key:

DWP pension entitlement        £12972 (annual)
DWP pension received            £ 4358   (actual)
Private pension (gross)           £ 6385
Total income (gross)               £10743
Tax deducted                          £   849

 

jem16

HugoFS said:

First time I've heard that nomenclature but it sounds meaningful, thank you.  However, the second part of your comment is key:

DWP pension entitlement        £12972 (annual)
DWP pension received            £ 4358   (actual)
Private pension (gross)           £ 6385
Total income (gross)               £10743
Tax deducted                          £   849

 

When your state pension begins, your tax code is adjusted by the full annual amount and then the tax code is used on a Mth1 basis so that only tax due going forward is taken and does not take anything into account for the previous months. So in that sense the tax code was correct.

However due to the low amount of your private pension you would still have had unused allowances from April,2024 to November 2024  that the MTh1 code wouldn’t have taken into account. So yes you’ve overpaid tax.

Your P800 may still be forthcoming but I’d suggest that you contact HMRC again and explain what your total income was for 2024/25 and how much tax you paid. If still no joy you may need to escalate it by writing and setting it all out.

HugoFS

Thanks for the sanity check, jem16 and Isthisforreal99.

I can see from the private pension P60 that the final tax code they were using was 435L M1, so that matches the actual £4358 gross income from the state pension, and I can see it is an emergency (monthly) code.

I did ask for an escalation, and have been promised a call back from HMRC.  If they don't call me back, I'll lodge a request to correct the overpayment by old-fashioned letter and see where that gets me.

Dazed_and_C0nfused

HugoFS said:

First time I've heard that nomenclature but it sounds meaningful, thank you.  However, the second part of your comment is key:

DWP pension entitlement        £12972 (annual)
DWP pension received            £ 4358   (actual)
Private pension (gross)           £ 6385
Total income (gross)               £10743
Tax deducted                          £   849

 

Are you quite certain you haven't omitted any other income from that tax year?

It's fairly unusual for things to go wrong like this for the tax year you first get your State Pension. 

Did you contact HMRC at all when you received the updated tax code for 2024/25?

Also, this doesn't really make sense, if the tax code was 435L it means you probably had tax code deductions of ~8.2k, not 12.9k

I can see from the private pension P60 that the final tax code they were using was 435L M1, so that matches the actual £4358 gross income from the state pension, and I can see it is an emergency (monthly) code.

HugoFS

Absolutely positive I had no other income.  I stopped work and retired, then lived off savings until state pension age.  I timed my private pension to start at the same time as the state pension.  Not another penny of income was received, except a negligible amount of bank interest that I will declare if this issue gets any further towards resolution.

Dazed_and_C0nfused

HugoFS said:

Absolutely positive I had no other income.  I stopped work and retired, then lived off savings until state pension age.  I timed my private pension to start at the same time as the state pension.  Not another penny of income was received, except a negligible amount of bank interest that I will declare if this issue gets any further towards resolution.

DWP only tell HMRC about the weekly value, not an annualised amount so whatever has gone wrong must be at HMRC's end.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye76070

The person you spoke to clearly doesn't understand what has happened.  Does your Personal Tax Account show that 2024/25 has been reviewed yet?

Maybe try another call in the hope you get someone more experienced?

p00hsticks

HugoFS said:

Thanks for the sanity check, jem16 and Isthisforreal99.

I can see from the private pension P60 that the final tax code they were using was 435L M1, so that matches the actual £4358 gross income from the state pension, and I can see it is an emergency (monthly) code.

But I don't think that those two figures should match. The allowance left to be utilised by your private pension should be the standard allowance minus the untaxed income you receive via your state pension.

As others have said, usually HMRC use the annual amount but apply a non-cumulative code in the first year so that the tax is only taken for months after you start receiving the State pension. 

xylophone

Have you registered

https://www.gov.uk/personal-tax-account

What is shown for the year 24/25?

See also

https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/how-tax-collected-state-pension

Are you in receipt of a regular occupational pension each month?

What is the tax code for the current year?

HugoFS

xylophone said:

Have you registered

https://www.gov.uk/personal-tax-account

Yes

What is shown for the year 24/25? 

See also

https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/how-tax-collected-state-pension

Are you in receipt of a regular occupational pension each month? Yes

What is the tax code for the current year? K87 - which reflects correctly that my state pension is augmented because of SSP contributions

Does this help?