Tax on state pension in first year - again!

polar_pig

pinnks - I think your method is equally valid as it gives the same result as taking the total number of days, dividing by 7 and rounding down, as used by DWP/HMRC to calculate the TCN.

But in my case they seem to have rounded *up* the number of weeks in my HMRC SA correction!

Jeremy535897

molerat said:

The first (part) week would likely have been at previous year rate so £31.95 looks about right for 1/7th of that.

I considered that, but the rate changed from 8 April.

Jeremy535897

Jeremy thank you for your reply and providing more data to allow me to try to reverse engineer DWP calculations. Do you know how much DWP/HMRC believe your entitled pension should be? 

I agree David Heaton's method would give you 51 weeks at £232.75=£11870.25. 

When you say "using LITRG" do you mean the example of Christine in your link below...

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

or the example of Wes in the link... 

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

I get the same result using DH's method or either of the LITRG examples. 

I note your TCN states £11406 and that is within the £1 rounding error for exactly 49 weeks pension. I don't know why your TCN is 49 weeks whilst there are clearly 51 complete weeks of entitlement. 

Regarding the first payment, I believe you were entitled to 8 days (10th to 17th April inclusive) at £33.25/day that would be £266.00. Your actual payment of £264.70 is a little low but maybe due to some weird rounding or as molerat suggests, due to some hang over at the previous lower rate at the start of April.

So, CAN one ignore the fractional week (6 days in my case)? I'm not sure till a calculation is determined. However in my case HMRC are rounding it to 7 days and that seems to include one days entitlement into the next tax year.

I don't think it's using the previous rate as it should have changed from 8 April, but for 31.30 I wasn't going to investigate.
I used the Christine example, which includes the rogue day, whereas the David calculation doesn't.
I recommend you use what LITRG says it is.

polar_pig

I *think* I've worked out how DWP/HMRC work out the taxable amount of the State pension within the first tax year of claiming.

We know that the SP is paid on the same day of the week every time (day varies depending upon the NI number of taxpayer). According to Tolley, the tax bible used by accountants, the number of entitled weeks of SP in a tax year depends on the number of times that this day of the week occurs in the tax year. (This number is the same irrespective of whether payments are made weekly or 4 weekly.)

For a whole year the answer is 52 or 53. For non-leap years 1 in 7 of these years will have 53, but for leap years this is 2 in 7 of these years. Overall there is about a 20% chance of any specific day of the week occurring 53 times in a year.

According to Tolley when your payment day of the week occurs 53 times, your taxable pension entitlement is 53 times the weekly pension amount, otherwise it's 52 times. Over the years, this averages out any tax payable for the extra partial week in a year.

For a partial year of SP e.g. the taxpayer's 66th birthday occurs part way through the tax year, I suspect it works in a similar way.

*IF* this is correct, this taxpayer can work out the taxable SP by finding their payment day of the week (say from a bank statement) and from a calendar determining the number of times this day of the week occurs between their 66th birthday and the next 5th April, including both their birthday itself and 5th April should those dates fall on that day. The taxable SP becomes this number of occurrences multiplied by the weekly SP entitlement on their DWP letter.

However, this taxpayer may receive a Tax Code Notification (TCN) for this same tax year. The SP element of this tax code is calculated *differently*.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye76086

This is calculated by taking the total number of days from the 66th birthday to the next 5th April inclusive, dividing by 7 and rounding *down*. This is then multiplied by the weekly SP entitlement on their DWP letter.

*IF* this theory is correct, it does account for why my TCN SP works out as X weeks and my HMRC corrected SA taxable SP works out as X+1 weeks.

Why can't the TCN be calculated in the same way as required for Self Assessment? A good question .... I don't know!

I wish the notes provided to help fill in the SA provided the clarity to ensure that more taxpayers can get the same figure that DWP/HMRC expect. This would save so much time (and anxiety).

Jeremy535897

https://forums.moneysavingexpert.com/discussion/comment/81857300#Comment_81857300

Well, my TCN is £11,406 and taxable is £11,902.20. It's 2 weeks and a day out (roughly).

Why it isn't just the amount you receive in the year, like every other pension, is a mystery.

dales1

"According to Tolley when your payment day of the week occurs 53 times, your taxable pension entitlement is 53 times the weekly pension amount, otherwise it's 52 times. Over the years, this averages out any tax payable for the extra partial week in a year."

Well that doesn't work for me.

There were 53 Tuesdays (my pension day) in 2021-22, but HMRC pre-filled 52 weeks' pension in my tax return.

In fact they have always pre-filled 52 weeks (and never 53 weeks) for as long as they have been pre-filling it.

Dales.

mybestattempt

Perhaps the answers lie here:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75020

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim76005

Jeremy535897

https://forums.moneysavingexpert.com/discussion/comment/81858111#Comment_81858111

What those say is no different from the discussion we have been having. The difference is that HMRC is content to tax every pension except the state pension on a receipts basis, while recognising that the taxpayer has a right to insist on the accruals basis being used. The state pension however is always taxed on the strict accruals basis.

dogfonos

"Why it isn't just the amount you receive in the year, like every other pension, is a mystery."

"Quite how HMRC expects the average pensioner to navigate all this is beyond me."

Absolutely! I submitted my SA tax return and received a letter from HMRC (dated 25th December 2025 - so auto generated, I imagine, or someone's on triple time) saying they disagreed with the figure I entered for SP earnings. I confess, I didn't read guidance or conduct research before I filled in my SP earnings for the 2024-25 tax year because I thought it was obvious, how wrong I was.

I then wondered about the legality of having to pay tax on my "SP entitlement" rather than the SP sum I actually received during that tax year. Has this ever been challenged in court of law? I thought tax liability would only apply to actual sums received. Baffling.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81860704#Comment_81860704

It is what the legislation states at the moment so nothing to challenge really from that perspective.