Wildly incorrect tax code !!!

[gbb]

Ok, so rang them but still not much the wiser

The tax code K1747 is actually 2024/25.
Bear in mind im not really very wise with this stuff...asked the following
Q. What is my tax code this year ?
A. (iirc) thats calculated next year.(or at the end of this year if you prefer)

Ok so that makes sense.

Q. Am I taxed at source on my pension ?
A. No, its paid gross.
So im asking myself why my HMRC states expected state pension income will be X...but im actually getting Y..a fair bit less.
I cant find anything that definitively states what my pension SHOULD be.

There was no real explanation why my expected income tax would be IRO £90k..perhaps I didnt ask the right question or in the right way..although he did say it would all sorts itself out at the end of this financial tax year.
Seems a long time to wait for some clarity !!!

What i think ive learned is i need to notify them at the end of the year of my total state pension plus interest on savings etc. Is that normal ?

 

[midlife]

The state pension is not taxed at source but always paid in full. Then HMRC claw back any deductions from it either by changing your tax code or sending you a tax bill. Same with the winter fuel allowance.

 

[gbb]

My original concern was that HMRCs estimated State Pension earnings was £16k..and im actually getting less, so was i being excessively taxed on it ?....which having talked to HMRC sorts that one.
Next step is to talk to Pensions Centre Helpline to confirm why the difference. Yes it states estimated...but i dont like uncertainty
It's no drama, just trying to understand how it works...

 

[Dorset Boy]

As said above, the State Pension is taxable income, but there is no facility for HMRC to deduct tax at source. It therefore uses up most, or all of your (standard) personal allowance.
If (as will be the case for the majority from April 2027), your State Pension exceeds your (standard) personal allowance, the tax liability will be deducted from another source of income such as a company or private pension.
If you have more than one source of additional income, you may have different tax codes for each source.

Say you have State Pension of £14,500, Plus 2 other pensions providing £5,000 pa and £7,000 pa.
total taxable income = £26,500 pa
Personal Allowance £12,570
So State Pension uses up all your personal allowance, but £1,930 of the State Pension is also subject to tax at 20% (basic rate).
The 2 private pensions are each subject to tax at 20% (basic rate).
However, the liability on the State Pension will be taken from one of the private pensions, say the £7,000 pa one.

The tax taken on the £7,000 pension will then be:
£7,000 x 20% = £1,400 plus
£1,930 x 20% = £386 the liability on the excess of the State Pension over your personal allowance
Giving a total deduction on that pension of £1,786

The other private pension will be taxed at 20%, so £5,000 x 20% = £1,000

You should check after the end of the tax year that the right amounts have been taken - you will get a P60 for the private pensions.

 

[T4tomo]

As said above, the State Pension is taxable income, but there is no facility for HMRC to deduct tax at source. It therefore uses up most, or all of your (standard) personal allowance.
If (as will be the case for the majority from April 2027), your State Pension exceeds your (standard) personal allowance, the tax liability will be deducted from another source of income such as a company or private pension.
If you have more than one source of additional income, you may have different tax codes for each source.

Say you have State Pension of £14,500, Plus 2 other pensions providing £5,000 pa and £7,000 pa.
total taxable income = £26,500 pa
Personal Allowance £12,570
So State Pension uses up all your personal allowance, but £1,930 of the State Pension is also subject to tax at 20% (basic rate).
The 2 private pensions are each subject to tax at 20% (basic rate).
However, the liability on the State Pension will be taken from one of the private pensions, say the £7,000 pa one.

The tax taken on the £7,000 pension will then be:
£7,000 x 20% = £1,400 plus
£1,930 x 20% = £386 the liability on the excess of the State Pension over your personal allowance
Giving a total deduction on that pension of £1,786

The other private pension will be taxed at 20%, so £5,000 x 20% = £1,000

You should check after the end of the tax year that the right amounts have been taken - you will get a P60 for the private pensions.

just to add to this - you should get a payslip from both private pensions, which will show the tax code being used.
As DB says above, one should show a BR tax code and the other should be adj to collect extra tax so should be a K rather than L, possibly K193 or similar .
*tax codes are done as a factor of 10, so your standard 12570 allowance is a 1257L tax code.

 

[bikingdad90]

@Dorset Boy, slightly off topic.

I wonder how HMRC will collect the tax on those who don’t have a 2nd source of income but their state pension is over the personal allowance. If they haven’t got a mechanism I can foresee a scandal when loads of pensioners get a demand for unpaid tax, bit like the higher income child benefit charge.

 

[T4tomo]

@Dorset Boy, slightly off topic.

I wonder how HMRC will collect the tax on those who don’t have a 2nd source of income but their state pension is over the personal allowance. If they haven’t got a mechanism I can foresee a scandal when loads of pensioners get a demand for unpaid tax, bit like the higher income child benefit charge.

the write to you and ask for it. TBf its only going to be c£400 a year on teh above example

 

[bikingdad90]

True, it’s small numbers but given HMRC’s speed, I can easily see a scenario where they take 2-3 years to catch up and suddenly you find you have a substantial amount due for previous years and current year.

 

[T4tomo]

yes that is a risk as they arent the swiftest

 

[Dorset Boy]

@Dorset Boy, slightly off topic.

I wonder how HMRC will collect the tax on those who don’t have a 2nd source of income but their state pension is over the personal allowance. If they haven’t got a mechanism I can foresee a scandal when loads of pensioners get a demand for unpaid tax, bit like the higher income child benefit charge.

Rachel from Accounts did say that if there is no other source of income then she won't be coming for the tax.
Now that's crazy as I see people with State Pensions well over the personal allowance already.....
I suspect there will be demands in the post down the line.

They need to also stop paying the State Pension every 4 weeks and switch to paying monthly. It's a stupid anachronism, especially as almost every bill you pay is done monthly.

 

[PaulSB]

Anyone had similar and suggest the route to get it corrected
Retired last year, did draw a lump sum on some pension pot so that would have skewed my income but even then, I think that was two years ago.
Anyway, my projected income is ridiculous, over £200k...Hahaha
Tax allowance shows as MINUS £20k ish

I've read and read the HMRC page but cannot see how to challenge this .. any ideas out there

In your shoes I'd be looking for a financial adviser or tax specialist. Both should be able to resolve your issues, provide you with a proper layman's explanation of the position and put you on the right track for the future.

A few £££s invested in professional help could save you a lot of heartache. HMRC will get it right eventually if you provide the correct information. I'm not convinced you fully understand your position and so should seek professional help to get to the root of what you need to tell HMRC.

I agree with others HMRC are very helpful on the phone but there are limits to what the staff can do.