The real cost of triple lock

[Alaric]

Actually while I was out another thought occurred to me.
The state pension has NO PAYE mechanism.
So, we will soon have very many people, who have never managed their own tax before, due to pay tax.

Additional income if taxable is most likely to come from a pension scheme or drawdown. Either way it's under PAYE rules. Invesment Income wouldn't, but those would likely have had to be aware of taxation.

In effect whilst there's no taxation on the State Pension, it gets taxed via parallel Occupational or personal pensions. It would present a problem if the State Pension exceeded the personal allowance.

[Urbandreamer]

Actually while I was out another thought occurred to me.
The state pension has NO PAYE mechanism.
So, we will soon have very many people, who have never managed their own tax before, due to pay tax.

Additional income if taxable is most likely to come from a pension scheme or drawdown. Either way it's under PAYE rules. Invesment Income wouldn't, but those would likely have had to be aware of taxation.

In effect whilst there's no taxation on the State Pension, it gets taxed via parallel Occupational or personal pensions. It would present a problem if the State Pension exceeded the personal allowance.

NO! you failed to understand my point. My point assumed a future time for a person with NO additional income. I.E just state pension income, which at the time might be above the personal allowance.

As has been pointed out though, it may not happen.

[Lootman]

Additional income if taxable is most likely to come from a pension scheme or drawdown. Either way it's under PAYE rules. Invesment Income wouldn't, but those would likely have had to be aware of taxation.

In effect whilst there's no taxation on the State Pension, it gets taxed via parallel Occupational or personal pensions. It would present a problem if the State Pension exceeded the personal allowance.

NO! you failed to understand my point. My point assumed a future time for a person with NO additional income. I.E just state pension income, which at the time might be above the personal allowance.

As has been pointed out though, it may not happen.

I think that you are both right.

My state pension is currently £900 per month and so (just) below my personal allowance. I have various other forms of non-pension income above that but, thank God, do not have to deal with PAYE and withholding.

But if the personal allowance stays frozen and my SP keeps going up, then I will get sucked into the system. Hopefully the next government will increase the personal allowance to something sensible. £15,000 a year would be a start.

[tjh290633]

I assume that people retiring now are 67, so their working life spans the years approximately 1976 to 2023. During that period they will presumably become involved with SERP, to some extent. I retired in 1998, 20 years after SERP began, and could have been entitled to the maximum possible Additional Pension, had I not been contracted out for much of that time. Without looking it up, that was over £300/week. Indexation will have increased that amount which is additional to the Basic State Pension.

When the new Pension came in a lot of these accrued entitlements were added to the basic amount. I was already receiving my pension, so was not affected but I suspect that many of today's retirees are. I doubt that any are entitled to Graduated pension.

It might be worth looking into the mechanism.

TJH,

[mc2fool]

I assume that people retiring now are 67, so their working life spans the years approximately 1976 to 2023. ... I doubt that any are entitled to Graduated pension.

State pension age is still 66, it rises to 67 between 2026-2028. Someone born in 1957 could have left school at 16, as the majority did, in 1973, and so could have earned some Graduated Retirement Benefit until it was scrapped in 1975, which would go into their 2016 "starting amount" calculation.

[Wuffle]

And we have circled round to the actual problem.
The amount can be argued over, the real issues with most western economies being the numbers (boomers, I am looking at you but not blaming) and duration.
Duration being a particular problem because we didn't move the retirement age as life expectancy went up.
Normal people (me, but not most on here) work 40 years and retire for 20 so a year on life expectancy needs a couple on work to keep the proportions.

Retirement (and education for that matter but a case can be made) are a much bigger percentage of our lives as non productive assets so of course it was going to be a problem in a democracy. People are flawed.

W.

[XFool]

Actually while I was out another thought occurred to me.
The state pension has NO PAYE mechanism.

When I first read this I was puzzled by what you meant. Then the penny dropped...

So, we will soon have very many people, who have never managed their own tax before, due to pay tax.

No doubt one of the unintended consequences of recent decisions. I wonder how that will play out.

Ultimately doesn't this issue go back to George Osborne and his 2013(?) budget. I remember commenting on it on TMF, at the time.

[XFool]

My state pension is currently £900 per month and so (just) below my personal allowance. I have various other forms of non-pension income above that but, thank God, do not have to deal with PAYE and withholding.

Au contraire! Bring back "witholding" - the old system (pre Osborne) was much simpler for most people. I didn't even have to bother with SA, Tax returns.

What could be simpler than that?

[Lootman]

My state pension is currently £900 per month and so (just) below my personal allowance. I have various other forms of non-pension income above that but, thank God, do not have to deal with PAYE and withholding.

Au contraire! Bring back "witholding" - the old system (pre Osborne) was much simpler for most people. I didn't have to bother with SA, Tax returns.

What could be simpler than that?

One reason to prefer handling it manually rather than via PAYE is that you can pay the tax much later. So for example the income I am getting right now will not be taxed until as late as January 2025.

I have not been under PAYE this century and am fine with that. I prefer controlling the process. I just send a cheque to the taxman once a year. No withholding.

[XFool]

Au contraire! Bring back "witholding" - the old system (pre Osborne) was much simpler for most people. I didn't have to bother with SA, Tax returns.

What could be simpler than that?

One reason to prefer handling it manually rather than via PAYE is that you can pay the tax much later. So for example the income I am getting right now will not be taxed until as late as January 2025.

So what? Anyway, with 'PAYE' the tax is not taken in one lump at the start of the tax year, it is taken month by month throughout the year, automatically. All I'd ever have to do, if I wanted to, was very simply work out the figures to see if I agreed with them. I invariably did.

I have not been under PAYE this century and am fine with that. I prefer controlling the process. I just send a cheque to the taxman once a year. No withholding.

I'd give anything to return to the previous arrangements. Simplicity wins it every time with me!

(Who sends "a cheque" these days? Unless you were just using a metaphor.)

I seem to remember when the current system of taxation was brought in by Osborne, reading in a HoC report that only a surprisingly small number of then ordinary rate taxpayers were affected (a couple of hundred thousand?), of which I was one.

It would be interesting to know now what proportion of normal rate taxpayers will need to start paying tax to HMRC. Many of those will have not the slightest idea about any of this. They may, like myself have only ever completed one or two tax returns over their entire working life - or none.

No wonder HMRC currently suspends their phone help lines for a portion of the year.

[Lootman]

One reason to prefer handling it manually rather than via PAYE is that you can pay the tax much later. So for example the income I am getting right now will not be taxed until as late as January 2025.

So what?

Back at 0% interest rates it did not matter so much. But at 5% rates, deferring the tax by between 9 and 21 months is worth several hundred pounds a year for someone in my tax situation.

I write 2 cheques a year, and one of them is to the taxman. I do not want an online account with the taxman, nor anything like a direct debit arrangement. If they let you pay by credit card I would do that, but to my knowledge they do not.

[Alaric]

I do not want an online account with the taxman, nor anything like a direct debit arrangement. If they let you pay by credit card I would do that, but to my knowledge they do not.

You can pay online with electronic banking from your bank account, Like a cheque, you send the money to them, rather than them taking it from you.

[77ss]

.......

(Who sends "a cheque" these days? .....

On the rare occasion when I owe the taxman, I do. Works for me.

What is your problem with writing a cheque?

[scrumpyjack]

You can pay by debit card

[chas49]

.......

(Who sends "a cheque" these days? .....

On the rare occasion when I owe the taxman, I do. Works for me.

What is your problem with writing a cheque?

I have no idea if Xfool has a problem with it. I would though. Have you seen the price of a stamp? And what happens if the cheque goes astray - when will you realise you haven't paid? What if you get hit with a penalty for late payment as a result?

Solution - pay online by debit card. You get an acknowledgement of the payment (almost) immediately.

Seems OK to me.

[Lootman]

You can pay by debit card

But wouldn't I need to set up an online account with the taxman for that?

I do not even have online banking so a cheque once a year suits my luddite old-school technophobe ways.

[dealtn]

On the rare occasion when I owe the taxman, I do. Works for me.

What is your problem with writing a cheque?

I have no idea if Xfool has a problem with it. I would though. Have you seen the price of a stamp? And what happens if the cheque goes astray - when will you realise you haven't paid? What if you get hit with a penalty for late payment as a result?

Solution - pay online by debit card. You get an acknowledgement of the payment (almost) immediately.

Seems OK to me.

Not that I am advocating it, but those "cheque" problems are avoidable. You don't need to send them and pay for a stamp, and can guarantee it doesn't go astray or not pay. That's one of the purposes of banks. Free too.

[mc2fool]

Au contraire! Bring back "witholding" - the old system (pre Osborne) was much simpler for most people. I didn't have to bother with SA, Tax returns.

What could be simpler than that?

One reason to prefer handling it manually rather than via PAYE is that you can pay the tax much later. So for example the income I am getting right now will not be taxed until as late as January 2025.

I have not been under PAYE this century and am fine with that. I prefer controlling the process. I just send a cheque to the taxman once a year. No withholding.

I guess you didn't ask your accountant about payments on account after they were last pointed out to you. If you aren't at least 80% under PAYE and your last income tax bill was at least £1000 then you have to make payments on account equal to your last tax bill, split equally in the previous January and July. So...

By January 2024 you must make a payment on account towards your 2023/4 tax bill of 50% of what your 2022/3 tax bill was, and then
by July 2024 you must make another payment on account towards your 2023/4 tax bill of 50% of what your 2022/3 tax bill was, and then
by January 2025 you must make what is called a "balancing payment" for the excess, if your 2023/4 tax bill is more than the two payments on account you've already made.

And, of course, by January 2025 you must also make a payment on account towards your 2024/5 tax bill of 50% of what your 2023/4 tax bill was, and so on....

So, if you're only sending in one cheque each year it must include two payments on account, and the balancing payment for the previous year.

https://www.gov.uk/understand-self-assessment-bill/payments-on-account

[Lootman]

One reason to prefer handling it manually rather than via PAYE is that you can pay the tax much later. So for example the income I am getting right now will not be taxed until as late as January 2025.

I have not been under PAYE this century and am fine with that. I prefer controlling the process. I just send a cheque to the taxman once a year. No withholding.

I guess you didn't ask your accountant about payments on account after they were last pointed out to you. If you aren't at least 80% under PAYE and your last income tax bill was at least £1000 then you have to make payments on account equal to your last tax bill, split equally in the previous January and July.

So, if you're only sending in one cheque each year it must include two payments on account, and the balancing payment for the previous year.

My tax bill for last year was about £4,500 and I am not under PAYE at all and have not been for about a quarter century!

No payment on account is required, or my accountant would have told me. And HMRC seem perfectly happy with me because I have been paying taxes this way since at least 2009!

The cheque is for the tax due as determined by my SA return for that year.

I believe the reason for the exception is to do with the fact that most of my tax due is CGT and that is considered separately from income for this purpose.

[mc2fool]

I guess you didn't ask your accountant about payments on account after they were last pointed out to you. If you aren't at least 80% under PAYE and your last income tax bill was at least £1000 then you have to make payments on account equal to your last tax bill, split equally in the previous January and July.

So, if you're only sending in one cheque each year it must include two payments on account, and the balancing payment for the previous year.

My tax bill for last year was about £4,500 and I am not under PAYE at all and have not been for about a quarter century!

No payment on account is required, or my accountant would have told me. And HMRC seem perfectly happy with me because I have been paying taxes this way since at least 2009!

The cheque is for the tax due as determined by my SA return for that year.

I believe the reason for the exception is to do with the fact that most of my tax due is CGT and that is considered separately from income for this purpose.

Yes, I did say it applied if your last income tax bill was at least £1000, and of course there is no PAYE for CGT, so your point about preferring to handle it manually rather than via PAYE is moot for your case anyway.