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Incorrect tax deduction

Bubblesofearth
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Incorrect tax deduction

#322711

Postby Bubblesofearth » June 30th, 2020, 10:08 am

I recently received my first pension payment and have been charged tax on it - about 12% of the total amount. However, my total taxable income for the year will be well below my personal allowance. HMRC know this as, when I log onto my account with them, they have the right income information and the tax estimate is indeed zero.

The pension payment was delayed by CV19 and includes some backdated months but this should not affect taxation. Last year my total taxable income was pretty much zero.

My question is whether this is something that will be sorted out by HMRC in time or whether I need to take action. I've tried calling them but it's hopeless trying to get through.

Does anyone know if this taxation is normal and/or will be resolved without action on my part.

BoE

bluedonkey
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Re: Incorrect tax deduction

#322716

Postby bluedonkey » June 30th, 2020, 10:21 am

a) What PAYE code has been applied to your private pension?
b) Are you receiving State pension?

xxd09
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Re: Incorrect tax deduction

#322724

Postby xxd09 » June 30th, 2020, 10:36 am

Not entirely relevant but may be of some help in how HMRC works
You can set up a Government Gateway website that allows you access to your Income Tax calculations by HMRC
You can the see how they arrive at their calculations -you seem to have done this
I find that they respond to reasoned letters within a month
Personally:-
I have a SIPP from which I withdraw some thousands every year as my Pension
It is paid to me with Tax deducted by my Investment Platform-Interactive Investor
I then reclaim Tax online by a R55 form (using my Government Gateway)
Reclaimed tax usually paid into my bank account within a month
Probably they will correct the situation at the end of the tax year if you leave it
They will pay it sooner if you write and ask for it
I have never attempted to correct complicated situations like tax assessment over the phone
Letters are better-you have a record and they have time to give a reasoned response
xxd09.

bluedonkey
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Re: Incorrect tax deduction

#322733

Postby bluedonkey » June 30th, 2020, 11:08 am

I agree with letter vs phone for the reasons quoted above.

swill453
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Re: Incorrect tax deduction

#322739

Postby swill453 » June 30th, 2020, 11:31 am

In general if you get a bigger-than-usual payment early on in the tax year, it will be over-taxed as your pension provider's payroll system can't predict what your total income for the year will be. It assumes you'll get the same every month going forward.

If you get further consistent monthly payments for the rest of the year it will automatically sort itself out.

If it's a one-off payment and you're getting no more this year, then you can fill in a P55 and reclaim the excess tax now. Or wait until after the end of the tax year and you'll get an automatic tax refund (or an adjusted tax code for next year).

Scott.

mc2fool
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Re: Incorrect tax deduction

#322745

Postby mc2fool » June 30th, 2020, 11:45 am

From what I've heard anecdotally, it's quite common for pension schemes to start you off on a default tax (PAYE) code and sort it out with HMRC along the way.

Googling finds lots on the matter, here's just one: https://www.litrg.org.uk/tax-guides/pensioners/how-do-i-check-my-coding-notices

I'd suggest calling your pension scheme, as that's almost certainly quicker and easier than HMRC, and asking about it, if you need to do anything, timescales, etc.....

seagles
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Re: Incorrect tax deduction

#322765

Postby seagles » June 30th, 2020, 1:14 pm

I have found using the government HMRC web-site and updating the details works. Last year I retired in June. I updated the web-site to "correct" year long "estimates", within a few weeks all of them were either enacted for 2019-2020 or noted for 2020-2021. I did not try to get a "refund" though as was happy with the tax code changes working it out for me. Mind you when completing online assesssment they still owed me £94, which was paid within a week of submitting the years tax assessment.

Bubblesofearth
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Re: Incorrect tax deduction

#322786

Postby Bubblesofearth » June 30th, 2020, 2:38 pm

swill453 wrote:In general if you get a bigger-than-usual payment early on in the tax year, it will be over-taxed as your pension provider's payroll system can't predict what your total income for the year will be. It assumes you'll get the same every month going forward.

If you get further consistent monthly payments for the rest of the year it will automatically sort itself out.

If it's a one-off payment and you're getting no more this year, then you can fill in a P55 and reclaim the excess tax now. Or wait until after the end of the tax year and you'll get an automatic tax refund (or an adjusted tax code for next year).

Scott.


Thanks, Scott, this is probably the reason. It would be nice to get the same amount every month but sadly this was a 5 month backdated payment. I'll see if it resolves before trying to raise HMRC again.

Thanks to other responders as well.

BoE

Lootman
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Re: Incorrect tax deduction

#322788

Postby Lootman » June 30th, 2020, 2:44 pm

bluedonkey wrote:
xxd09 wrote:They will pay it sooner if you write and ask for it. I have never attempted to correct complicated situations like tax assessment over the phone. Letters are better-you have a record and they have time to give a reasoned response
xxd09.

I agree with letter vs phone for the reasons quoted above.

And for another reason too. On the phone, an unexpected question from the taxman can elicit the provision of more information than you intended.

It took me a few months to sort out the mess when my wife blurted something out over the phone to the taxman. Had the question been posed in a letter we would have had the time to think clearly and compose a less problematic answer.

chas49
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Re: Incorrect tax deduction

#322825

Postby chas49 » June 30th, 2020, 6:50 pm

Bubblesofearth wrote:The pension payment was delayed by CV19 and includes some backdated months but this should not affect taxation. Last year my total taxable income was pretty much zero.


One thing that is not clear from your post is whether the total annual pension this year PLUS the backdated pension for previous months (due in the previous tax year but paid now) plus any other taxable income this year add up to more than the personal allowance for the current tax year. I don't think you can set the backdated pension off against last year's unused personal allowance. You're taxed on when it's received, not the period it was due for.

So that may give you the unfortunate situation of being taxed on income that would not have been taxable if it had been paid at the right time.

Bubblesofearth
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Re: Incorrect tax deduction

#322902

Postby Bubblesofearth » July 1st, 2020, 9:10 am

bluedonkey wrote:a) What PAYE code has been applied to your private pension?
b) Are you receiving State pension?


The tax code on the pension payslip is 1250L

The tax code on the HMG gateway site is S525TX for this pension and S724L for a small other pension. Annual total of 2 pensions is a lot less than my annual allowance, even including backdated pension payment.

BoE

mc2fool
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Re: Incorrect tax deduction

#322940

Postby mc2fool » July 1st, 2020, 11:49 am

Bubblesofearth wrote:The tax code on the pension payslip is 1250L

The tax code on the HMG gateway site is S525TX for this pension and S724L for a small other pension. Annual total of 2 pensions is a lot less than my annual allowance, even including backdated pension payment.

1250L is the "default" tax code (although you'd have thought the pension scheme would have at least made it S1250L as they must know you're living in Scotland....) https://www.gov.uk/tax-codes

So, if you multiply your first payment (including the backdated amount) by 12, does the annualised amount come to a total such that after application of the £12,500 personal allowance you'd be liable for a 12% deduction on it?

Bubblesofearth
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Re: Incorrect tax deduction

#322963

Postby Bubblesofearth » July 1st, 2020, 1:01 pm

mc2fool wrote:
Bubblesofearth wrote:The tax code on the pension payslip is 1250L

The tax code on the HMG gateway site is S525TX for this pension and S724L for a small other pension. Annual total of 2 pensions is a lot less than my annual allowance, even including backdated pension payment.

1250L is the "default" tax code (although you'd have thought the pension scheme would have at least made it S1250L as they must know you're living in Scotland....) https://www.gov.uk/tax-codes

So, if you multiply your first payment (including the backdated amount) by 12, does the annualised amount come to a total such that after application of the £12,500 personal allowance you'd be liable for a 12% deduction on it?


Yeah, pretty much. Hopefully it will be corrected once they see the smaller amounts per month or get the annual total. If not I'll chase them up.

Thanks

BoE


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