Tax - do they know what they are doing??

sonicshelly

My future step-mother is having problems with the tax office. She is 60 years old and retired.

In November she cashed in a private pension, which the total was appx £5500. When the cheque arrived, around £1400 had been deducted for tax??? We thought this to be too high.

So I took her to out local tax office, who gave her the number to ring, the tax office for the pension company. After the phone-call she was sent a form to complete to reclaim any over paid tax.

We did this and with it sent her parts 2 & 3of her P45 as advised. Several weeks later, after many phone-calls she receives a letter, stating she will have to complete a self assessment tax form at the end of April??????.

Anyway, a week ago she rang to find out where the form was, they said they would send one out. The form she has been asked to complete mentions the date April 5 '08 - April 6 '08 - What is that? Then it asks for parts 2 & 3 of her P45, it looks very similar to what we completed back in November?

Do they know what they are doing, if she owed them money, she would be in a lot of trouble. Also the money we believe they owe, is not making her interest in her bank account with the rest of her money - I know its not much, but its something she needs.

From April 2007 - Nov 2007, she was claiming invalidity benefit - £80 a week, then from Nov 2007 - April 2008, state pension of £120 a week = £4960 + £5500 (private pension) = £10510. Her tax code is 550L, so take 5500 from the total income, is 5010.

Is that right so far? What should she have had deducted? Sorry if I haven't explained enough, but we seem to be going around in circles with the tax office?
Thanks

tinkerbell84

22% of the 5.5k pension pot (which is taxable when withdrawn) would be around 1.4k of tax to pay.

Sounds about right to me.

sonicshelly

We were told this, right at the beginning, so not sure how this fits in

If you cash in a small pension fund or funds, the first 25% of the lump sum will be tax free, but the remainder will be taxed under PAYE

tinkerbell84

Is your mother drawing the pension and the 5.5k is the lump sum, or did she cash it in?

the 2 things are different.

if she's cashed it in (as in withdrawn the whole pot early) then as far as i know you pay tax on the lot.

sonicshelly

Hi - she cashed it in. But on the letter it gave the breakdown, and it specified 25% tax free = £1378.
Its just so confusing as she was told to fill in a self assessment form, then the form they sent last week, is asking for the info we have already sent with the copy of P45??

longforgotten

Hope you took photocopies of the paperwork you sent off.....

Cook_County

There is a clear example here if you want to read up:

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

sonicshelly

longforgotten wrote: »

Hope you took photocopies of the paperwork you sent off.....

Stupidly, no we didn't.

Whenever, I enter in the info on a tax calculator, its says around £850 for tax. Then I go on another and its around £1300???? Whats that all about. I am entering the same information.