Tax Code Help

WYSPECIAL

This might be on the wrong board as it is about paying tax rather than reducing it so please move it if it would be better elsewhere

My mother, now elderly, has got in a bit of a mess and confused with her income tax the last couple of years so has asked me for help.

She receives a state pension which is in excess of her annual tax allowance of £12570 but obviously tax can't be deducted from this. She didn't understand this which is where much of the confusion has come from.

She also receives two very small annuities which together would be enough to pay the amount of tax she is liable for a year. HMRC have applied K codes to these two annuities but the maximum that can be deducted PAYE wise is 50% but that isn't enough to cover her tax liability.

I would like to make it as simple as possible so that all of her tax is collected via PAYE rather than for her to have to make a payment each year. Is there a tax code we can request that could collect more than 50% from the two annuities?

As an alternative she does have another pension pot that she has occasionally taken money from on a drawdown basis. Could we set up a drawdown from this and ask for a K code to be applied so that between this and the two annuities all of the tax due was collected?

molerat

No PAYE software will deduct more than 50% of the gross payment so that angle is a non starter. Taking from the drawdown pot would be an option as long as you can do the sums but paying off the (interest free loan) bill once a year is still likely the simplest route. Does she have an on line tax account ? If she does that third pension will likely be showing with a code.

LITRG

Hello, tax codes will only ever collect an estimated amount and can get very troublesome where there are multiple income streams, so even with lots of prep and planning HMRC may still have to issue a simple assessment: https://www.litrg.org.uk/tax-nic/how-tax-collected/simple-assessment We also have guidance on the often overlooked tax and benefit implications of pension drawdowns, which I hope will be helpful: https://www.litrg.org.uk/pensions/pension-withdrawals/pension-withdrawals-thinking-ahead

WYSPECIAL

Thanks,

She does have an online tax account (I'm now registered as a helper) and the third pension has a code of BR.

If simple assessment can be avoided, even if this meant slightly overpaying initially, it would be great!

I appreciate not paying enough and then paying at the end of the tax year is technically an interest free loan but she gets very upset about it and it doesn't matter how many times I explain it doesn't seem to make any difference.

The issue seems to have arisen a few years ago when she stopped drawing out of her drawdown pension as she had more income than she needed so there was no longer enough non state pension income to deduct the tax she is due to pay from.

DRS1

A BR tax code is not going to help.

WYSPECIAL

https://forums.moneysavingexpert.com/discussion/comment/82160620#Comment_82160620

I know. That's why I was thinking if I could get them to change this to a K code then withdraw enough so that 50% of it would pay the tax liability on the state pension. The third pension currently only gets used for ad-hoc withdrawals and hasn't been accessed every year.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82160677#Comment_82160677

I think you may need to talk to HMRC about that. I confess that the only time I had a K code I got them to remove it on the basis that it would not collect the tax due (because of the 50% limit) and it was easier for me just to pay that tax via self assessment. Maybe updating the amount she is planning to draw from pension 3 would trigger a change to the code but if it was me I'd talk to someone at HMRC to explain what she wants to achieve and walk through the figures.

I will admit I don't know how K codes interact if you have more than one of them. I assume they won't just add the same figure to each income source.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82160695#Comment_82160695

K codes would only ever be issued to a single pension (or employment) at any one time

So the fact the op says this means something has gone wrong.

She also receives two very small annuities which together would be enough to pay the amount of tax she is liable for a year. HMRC have applied K codes to these two annuities

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82161118#Comment_82161118

@WYSPECIAL If you can access her personal tax account that should show the tax codes for the two annuities. If they are both K codes and that is wrong then maybe speaking to HMRC will just mean less tax gets deducted via PAYE if they correct one of those K codes. She may not be happy about that.

WYSPECIAL

https://forums.moneysavingexpert.com/discussion/comment/82161349#Comment_82161349

You’re correct, having double checked only one of the annuities has a K code. Since the amount paid is just over £300 per annum it isn’t going to collect much tax even at 50% deduction! The other, much bigger, annuity has a BR code. It would make more sense if they applied the K code to that one. The daft thing is they have just adjusted the numbers on the K code to try to collect more money but it was already at 50% anyway! Maybe I’ll just have to let it run and pay the amount on the Simple Assessment when it comes but I would prefer to have it collected throughout the tax year.

I know that they won’t speak to me as a registered helper without my mother present and we live quite a distance apart. Does anyone know if they will speak to me alone if we give them access to the POA? POA has been in place for years but unused to date.

DRS1

I suspect the £300 annuity may have started first. Certainly with my second annuity I got a BR style code . They might switch them around if you spoke to them but would 50% of the second annuity do the job? If not then I would leave it alone.