Too much Tax?? Please can anyone advise

sonicshelly

Hi, this is for a friend, who I have given my advice, but then wanted to check it was correct. Sorry if I ramble just want to give all the info.

She is 60 years old and now claims a pension. She was claiming incapacity previously.

She has cashed in her personal pension for a lump sum payment. When the letter came it showed the fund was worth £5515. Less 25% tax free which was £1378, this left £4136. Tax deducted was £1489 giving her a total payout of £4026.

Her tax code on her P60 is 522L. So from this information I was under the impression she was allowed an income of £5220 before any tax deductions.

Therefore from her benefit income of £3200 and the £4136 pension = £7336. She would then pay tax on £2116 - guessing to be about £425. We wondered why she was deducted £1489???

We did go to our tax office but they told us to phone the tax office of the pension company and request a claim form. I thought they would have sat down with her and looked at the figures, explaining them, silly me??

If anyone can help, much appreciated. Cheers

jem16

This might help you to reclaim the tax from HMRC.

http://www.litrg.org.uk/news/latest.cfm?id=339

sonicshelly

Thanks for the link - have requested the p43a form. Also reading the information, looks promising. But I just wondered if anyone was able to confirm what I think. I may not be aware of something relating to taxing pensions???

Many thanks in advance.

jem16

Having read the article I agree with what you have said except on £2116 of taxable income you would only pay tax at 10% on this as the first £2230 is the 10% rate this year. So £211.60 in tax.

However you said she is now 60 and claims a pension ( state pension I assume? ). Have you included this in your calculations of income?

sonicshelly

Her income of £3200 is her incapacity up to Nov 1 and then payments of pension up till now. Yes it is state pension,why would the pension company get it so wrong though. They are calculating it there and then, how they got a figure of £1400 is beyond me.

jem16

I have no idea either.

It would be worth getting in touch with the pension company and asking them to explain how they deducted the tax and at what rate.

Possetjohn

I think it may be just the way the PAYE system works, or the pension company has used an emergency code no. They should have sent a P45 with the payment which details the tax taken off.

Have a look at this link which explains the problems and how to reclaim the tax

http://www.litrg.org.uk/news/latest.cfm?id=339

jem16

Possetjohn wrote: »

Have a look at this link which explains the problems and how to reclaim the tax

http://www.litrg.org.uk/news/latest.cfm?id=339

Which is the link I already posted in Post 2.

Possetjohn

jem16 wrote: »

Which is the link I already posted in Post 2.

Oops! Sorry I missed that reading too quickly. At least we agree!

mrkbrrws

Possetjohn wrote: »

I think it may be just the way the PAYE system works, or the pension company has used an emergency code no. They should have sent a P45 with the payment which details the tax taken off.

Have a look at this link which explains the problems and how to reclaim the tax

http://www.litrg.org.uk/news/latest.cfm?id=339

They appear to have used an emergency code 522LW1:
http://www.listentotaxman.com/index.php?calc=1&year=2007&age=0&add=0&taxcode=&period=52&ingr=4136&Submit=Calculate

Which explains the high tax deduction as it assumes you earnt £4,136 in just one week!

sonicshelly

Sorry to appear stupid (not good on this tax business). Surely though the tax code on her p60 says 522L - so whatever she earnt after that is taxed. How do I find out at what rate is was calculated. I thought it was a standaard kind of rate as someone advised above 10% for the first £2000 and then 20% on the rest?
I have used the calculator above and typed in £7336 for a years income and it comes up with £211 - but they have taken £1400.
Sorry mrkbrrws - I see now, I entered in the amount but for a week and it comes up exactly with £1489 which was what was taken from her. Thanks - can now understand how the calculations were done. At least now we are sure she should be due some money back.