The Lemon Fool

I'm reading this document, which talks about the "month 1" emergency tax issue, but having some trouble fully understanding it:

https://www.investcentre.co.uk/sites/de ... yments.pdf

I retired on April 5th 2024. I've been sent a P45 from my employer, which duly gives 05/04/2024 as my last day of employment with them. It shows my tax code as "1191L". I'd like to start drawing down small amounts of accumulated cash from my SIPP (using UFPLS) at some point (probably no more than about £10,000 over the year in total, and I will have perhaps another £4-5,000 in taxable income over that time).

Am I right in suspecting that this P45 isn't valid for the current tax year, so I'm unable to avoid emergency taxation and will have to claim it back when I do my self assessment for 2024/25?

Oh actually, 1/12 of my emergency code will mean a £12,570/12 = £1,047.50. So maybe I'm not looking a much of an over-payment if I'm going to be taking about that amount as my first withdrawal?

Gilgongo wrote:I
Am I right in suspecting that this P45 isn't valid for the current tax year, so I'm unable to avoid emergency taxation and will have to claim it back when I do my self assessment for 2024/25?

I believe there's a form that enables excess taxation on the first payment to be reclaimed fairly quickly. It's been mentioned on the lemon fool boards.

I was looking at this recently. https://www.gov.uk/guidance/claim-back- ... ayment-p55
I have not accessed any pensions but that was where the research went.

Oh OK. Just more bureaucracy I suppose But at least it's only in the first year. I'm also hoping the overcharge will be pretty small given my small withdrawals.

Gilgongo wrote:Oh OK. Just more bureaucracy I suppose But at least it's only in the first year.

Not really. It's more to do with large withdrawals early in the tax year. They'll be overtaxed whether or not you have an emergency tax code. I'm in my sixth year of drawdown and currently in the process of reclaiming about £4K of extra tax.

Yes I know I could plan my withdrawals differently to avoid it, but I don't want to. Maybe giving HMRC all this extra work will force them to tweak the system to avoid the over-taxation in the first place.

I'm also hoping the overcharge will be pretty small given my small withdrawals.

Yes that's likely the case. Regular smallish withdrawals minimise the issue.

Scott.

The form is a P55.

If you make several withdrawals in a year, then the first one will be on a mth 1 basis, but then if it is your only PAYE source HMRC should issue a tax code to the payer, so subsequent withdrawals are taxed correctly (in fact this would enable the payer to refund tax overdeducted, but I have no personal experience of this situation, so cannot confirm this).

I asked a similar question recently of behalf of someone else. The replies included doing monthly sums or upto the tax threshold and submitting a P55 form. Someone also replied that the P55 took a month to reclaim and was fairly painless but HMRC would contact you to make sure your figures added up as you have to guestimate savings income etc

I see - I was holding off going into drawdown until I got my P45 and tax code. But seeing as that seems to make no difference as it's for 2023/24 in my case, I'll go ahead I think and just see what happens. I did write to HMRC a couple of months before I retired saying when my last day would be and how I planned to fund my retirement (almost all of which is from my ISA), but hey.