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  • FIRST POST
    • NorthernGeezer
    • By NorthernGeezer 15th Apr 18, 1:18 PM
    • 144Posts
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    NorthernGeezer
    Beat the Taxman
    • #1
    • 15th Apr 18, 1:18 PM
    Beat the Taxman 15th Apr 18 at 1:18 PM
    Is there a way to avoid paying emergency tax on your first drawdown withdrawal?
    I have a P60 from the last tax year AND an April pay slip which shows my current tax code.
    In this day and age of modern technology it just feels plain wrong to have to jump though hoops to get your overpayed tax back.!
Page 1
    • Linton
    • By Linton 15th Apr 18, 1:57 PM
    • 10,061 Posts
    • 10,391 Thanks
    Linton
    • #2
    • 15th Apr 18, 1:57 PM
    • #2
    • 15th Apr 18, 1:57 PM
    There are two separate issues. One is that HMRC wont know about your new income stream and so will not issue a tax code until the first payment has been made. Subsequent payments will then be taxed appropriately.

    The second issue is that PAYE is designed to work with a steady monthly income. The important feature is that the tax allowance and tax bands are divided by 12 and used monthly. Any unused allowances and tax bands are accumulated. So if you take a large drawdown early in the tax year you will be charged excessive tax, much as if the tax system expects you to be paid the same every subsequent month.

    So to minimise both problems take an initial small payment early in the first tax year and your main annual drawdown in the last month of the tax year.

    A different tax system to PAYE could be developed but the effort required and the complications of multiple tax systems both for HMRC and the paying companies could make it not worth the effort, especially considering the relatively small number of people affected.
    • NorthernGeezer
    • By NorthernGeezer 15th Apr 18, 2:13 PM
    • 144 Posts
    • 20 Thanks
    NorthernGeezer
    • #3
    • 15th Apr 18, 2:13 PM
    • #3
    • 15th Apr 18, 2:13 PM
    If i take a one-off payment up to my tax allowance in month 12, given that there isn't a month 13 withdrawal to pay any tax on, will i still pay emergency tax or is the code issued on the basis my withdrawal amount is below the tax threshold for the year?
    • Dazed and confused
    • By Dazed and confused 15th Apr 18, 2:29 PM
    • 3,288 Posts
    • 1,655 Thanks
    Dazed and confused
    • #4
    • 15th Apr 18, 2:29 PM
    • #4
    • 15th Apr 18, 2:29 PM
    Assuming your pension company operates a monthly system (which the majority mentioned on this board seem to) then the emergency tax code allows you to get 987 of taxable income before any tax is deducted.

    The whole principle of the emergency tax code is that only what is being paid in that week or month is considered, anything before or after is irrelevant to the payment made using the emergency tax code.

    The only time a new tax code could possibly be relevant if the mergemcy tax code was initially used in month 12 would be if you were to take a second payment later in month 12 and your pension company re-calculate things using the additional payment and new tax code. But realistically I think the pension company will not entertain this.
    • Linton
    • By Linton 15th Apr 18, 2:39 PM
    • 10,061 Posts
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    Linton
    • #5
    • 15th Apr 18, 2:39 PM
    • #5
    • 15th Apr 18, 2:39 PM
    If i take a one-off payment up to my tax allowance in month 12, given that there isn't a month 13 withdrawal to pay any tax on, will i still pay emergency tax or is the code issued on the basis my withdrawal amount is below the tax threshold for the year?
    Originally posted by NorthernGeezer
    The emergency code imust be used for your first ever payment. At that time there is no connection between the NorthernGeezer known to HMRC and the one taking the payment. HMRC only know that you are taking income from someone new when they see that you have been paid under PAYE. For all anyone knows you could have been on a 100K income and used your tax allowance months ago.

    After the first ever payment each income stream is taxed separately driven by separate tax codes set up to ensure the tax allowance is only used once.
    • NorthernGeezer
    • By NorthernGeezer 15th Apr 18, 8:34 PM
    • 144 Posts
    • 20 Thanks
    NorthernGeezer
    • #6
    • 15th Apr 18, 8:34 PM
    • #6
    • 15th Apr 18, 8:34 PM
    So, if i take say 500 in month one, i wont pay tax on this?
    If i take up to the rest of my annual tax allowance in month 12, i wont pay tax on this either?
    • Linton
    • By Linton 15th Apr 18, 9:40 PM
    • 10,061 Posts
    • 10,391 Thanks
    Linton
    • #7
    • 15th Apr 18, 9:40 PM
    • #7
    • 15th Apr 18, 9:40 PM
    So, if i take say 500 in month one, i wont pay tax on this?
    If i take up to the rest of my annual tax allowance in month 12, i wont pay tax on this either?
    Originally posted by NorthernGeezer
    I believe that is correct assuming you have no other sources of income. You will need to check your tax code once it has been issued. As 500 is less than 1/12th of the annual allowance you should be ok in month 1 and by month 12 you should have built up enough AA to cover the rest.
    Last edited by Linton; 15-04-2018 at 9:43 PM.
    • NorthernGeezer
    • By NorthernGeezer 15th Apr 18, 9:44 PM
    • 144 Posts
    • 20 Thanks
    NorthernGeezer
    • #8
    • 15th Apr 18, 9:44 PM
    • #8
    • 15th Apr 18, 9:44 PM
    Sounds like a plan Linton, thanks
    • Reluctantpensioner
    • By Reluctantpensioner 16th Apr 18, 10:53 PM
    • 65 Posts
    • 31 Thanks
    Reluctantpensioner
    • #9
    • 16th Apr 18, 10:53 PM
    • #9
    • 16th Apr 18, 10:53 PM
    You say: "If i take a one-off payment up to my tax allowance in month 12, given that there isn't a month 13 withdrawal to pay any tax on, will i still pay emergency tax or is the code issued on the basis my withdrawal amount is below the tax threshold for the year?"

    I hoped this would work too: no emergency tax is totally stupid. I made a single 40K UFPLS withdrawal in month 12. They were uninterested in P45 or tax code. They taxed me as if my income were 480K/year!

    The good news: the government reclaim website is really simple (a bit too simple, some questions are ambiguous). And I got my tax rebate back really quickly, before the end of the tax year (did this last tax year, I have already cashed the cheque).
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