Tax on state pension in first year - again!

nottsdave59

https://forums.moneysavingexpert.com/discussion/comment/81898849#Comment_81898849

It’s about £65, so not much in the grand scheme of things, for me as an individual. But as a point of principle, it just seems wrong.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81898892#Comment_81898892

£65 income (two days presumably) or £65 extra tax?

dogfonos

Seems to me that the over-riding principle of paying income tax is as stated on the GOV.UK website:

"Income Tax: introduction Overview

Income Tax is a tax you pay on your income. You do not have to pay tax on all types of income."

No mention here of paying income tax on an entitlement.

Anyhow, as has been said, it's not so much about the money, more about wasted time trying to understand HRMC's figures. I appreciate there is detailed information out there - if you know where to look - but a simple explanation on the associated SA helpsheet/guide would be helpful (or maybe there is a precise explanation of HMRC's calculation on the helpsheet/guide and I just didn't find it?).

I seem to remember making use of a short-lived HMRC forum where customers fed back thoughts/suggestions:

https://www.litrg.org.uk/announcements/hmrcs-online-community-forums-are-closing

Shame, could have been another way for "customers" to feedback views.

nottsdave59

https://forums.moneysavingexpert.com/discussion/comment/81898911#Comment_81898911

£65 more tax to pay

molerat

https://forums.moneysavingexpert.com/discussion/comment/81899021#Comment_81899021

Is that just in the year which will be offset by less to pay this year or have / will you overall pay that much more tax ?

molerat

Seems to me that the over-riding principle of paying income tax is as stated on the GOV.UK website:

"Income Tax: introduction Overview

Income Tax is a tax you pay on your income. You do not have to pay tax on all types of income."

No mention here of paying income tax on an entitlement.

Unfortunately it is not as simple as that and can also affect the self employed where the year the tax is due can vary on whether they use the cash basis or accruals method of accounting.

As far as the state pension is concerned

578 Taxable pension income

If section 577 applies, the taxable pension income for a tax year is the full amount of the pension, benefit or allowance accruing in that year irrespective of when any amount is actually paid.

https://www.legislation.gov.uk/ukpga/2003/1/section/578

nottsdave59

https://forums.moneysavingexpert.com/discussion/comment/81899164#Comment_81899164

As far as I can see, I will definitely pay the extra in the first year. In subsequent years I will in theory pay based on a full years pension. The calculation is complicated by the fact that the pension changes in April. Again, it looks to me as though I will pay too much tax, because the first payment I receive in any given tax year in part is paid at the previous years rate, because pensions are paid in arrears. I will have to carefully check the figures after the end of this tax year!

1knuckles1

I'm seeing a similar part year example to Polar Pig's.

If the correct dates are the actual tax year, I'm seeing X weeks, 6 days rounded up to X+1 weeks. The tax return prepopulated figure then rounds up, not down.

The HMRC examples are vague on dates. If the correct dates are weeks paid (in this case Thursday - Wednesday), then I'm seeing X+1 weeks plus 2 days (to 8.4.26), taxed as X+1 weeks.

I’m thinking this might be the calculation to use, since the 2025/26 full year calculation uses weekly payments.

Given payments relate to Thursday - Wednesday and weeks are paid at either old or new rate (with no adjustment), the rate increased Thursday 9.4.26 (not the first Monday after 6/4). It looks to me as if HMRC are underpaying all April midweek payments.

The 2025/26 full year calculation uses 1 week old rate, 51 weeks new rate, which in this case would end 1.4.26. This means week ending 8.4.26, the last week paid at the old rate, is taxed in both 2025/26 and 2026/27. It looks to me as if HMRC are overtaxing part year payments.

With this knowledge I think we’ll be having a chat with HMRC. The difference of a week’s pension is not insignificant to a higher rate tax payer.