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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3823
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I am eligible pension and received my tax code for

Customer Question

I am eligible for state pension and received my tax code for 6/4/15-16 and 6/4/16-17. I do not understand how these have been calculated and believe there is an error. I have tried to discusss this with HMRC but they are not very clear and I am confused.
I work Monday to Friday in one job and Saturday and Sunday in another. I handed in my notice for the Saturday and Sunday job as I was eligible for state pension, but now based on the tax codes I am panicking that I will be significantly worse off.
Can someone help explain the P2s I have received, help me with the questions I should be asking HMRC and if possible help me complete an income tax calculation for scenarios now and on the basis that I handed in my notice so I can check my calculations are correct??
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. The normal procedure with State Pensions (SP), taxable, but paid gross, where a taxpayer has another employment, is for the tax code to be depressed to collect the tax due on the SP and leave you tax neutral at the end of each tax year. It is essential that you check the code to ensure that the deduction for the un-taxed SP is correct on each and every occasion a new one is issued. Any discrepancy should be taken up with the HMRC office which issued the coding in writing and a correction requested. I do hope that you have found my reply of assistance.
Customer: replied 1 year ago.
Hello - can I send you the P2 I have received so you can answer my specific question? I understand that all income will be taxed if above the threshold and that the SP is paid gross (allocated initially against my PA).I do not understand the other line items which are included on the P2 and how this affects the income tax calculation. Can we walk through the figures?
Expert:  bigduckontax replied 1 year ago.
Certainly, please send me your P2 and I can have a gander.
Customer: replied 1 year ago.
Great thanks! I have attached the P2s as 5 separate documents (apologies my scanner is not working). 2670 and 2671 relate to the 2015/16 P2 and 2672 through 2674 to the 2016/17 P2.I am entitled to SP of 128.73 a week from 8 March 2016 (confirmed by HMRC). I have two jobs earning 10,935.91 and 28,462.00 gross last year. I received gross pension income of 3,579.76 from a private pension from Honeywell.I do not understand why HMRC has deducted 6,693 of SP in 2015/16 (note 5 on 2670JPG) when I am only eligible for a payment of 514.92 from the period 8 March to 4 April 2016 (confirmed by HMRC) nor do I understand what the adjustment to rate band is of 3,332 (note 6 on 2670JPG). Is this supposed to represent my private pension from Honeywell?Because of these amounts my tax code has changed from 1050L to 48L. If the 3,332 is supposed to represent Honeywell pension then it looks to be double counted as it shows at the bottom of 2670JPG as being taxed at BR.If you then look at the P2 for the following year you will see HMRC has increased the SP amount to 132 per week (though I have no notice of this) and then the adjustment to rate band has increased to 5,376 thus adding money to my wages. I do not understand what this figure is and am anxious as my tax free threshold amount has dropped, in fact having amounts added to my income.I am recalculating my income tax but these figures have thrown me.Thank you in advance.
Expert:  bigduckontax replied 1 year ago.
Well I can see what HMRC are doing. Assuming that the data is correct it all hinges on whether or not you are actually in higher tax bracket. The 40% rate of tax kicks in at GBP 31865 [15/16], 32010 [16/17]. Thus if you are in a higher rate band then the tax codes may be correct, but if not then HMRC's calculations should be challenged by means of a letter to your tax office.
Customer: replied 1 year ago.
So what is the amount they are including in the adjustment to rate bands sorry? What exactly is that meant to represent? My gross income is 42,978 but I had planned to retire dropping my gross income (including the private pension) to 32,326 plus SP so total income 39,190.So less income but they are adding amounts onto my income and including that unexplained amount in the adjustment to rate bands note??I have my own income calculations but I don't have any adjustments like that. Purely income less PA then taxed at the applicable rates. This appears to be an additional adjustment reducing my PA (as far as I understand).Hopefully this is making sense to you. I could send my calculation perhaps?
Expert:  bigduckontax replied 1 year ago.
Unfortunately HMRC do not work like that. Your gross income of say 43K less your personal allowance of 10.6K leaves GBP 513 exposed to higher rates of taxation [@ 40%, 205]. Thus the inclusion of a rate band adjustment, albeit incorrect, is appropriate, but the quantum should be challenged especially for the 16/17 tax year., There is little point in doing this for 15/16 as we are so close to the end of the tax year and it will all come out in the wash as it were when you make your Annual Self Assessment tax Return.
Customer: replied 1 year ago.
Thanks for that. So they have added the 5,376 assuming that is what would be in the 40% rate band? The attached was my calculation originally before I seen the P2 and then again using their P2. To be honest it doesn't work out too different - but am I way off with what I am doing?And is the short answer that I should be calling them and stating that there should not be an adjustment as given I am retiring my gross income is only 32,327 (this is NHS plus Honeywell and excluding the SP).
Expert:  bigduckontax replied 1 year ago.
Your tax position if you retire is as follows, income 39211 - 11000 = 28211. The first 32010 is taxed at 20% so your bill would be 5942; you having no liability to higher rates at all. You should ask your tax office to remove the higher rates tax item from your code number. Your tax position if you do not retire is as follows; income 50121 - 11000 = 39121. The first 32010 is taxed at 20% [6404] and 7111 at 40% [2844] giving a total tax bill of 9248. I never advise anyone to telephone their tax office. There is far too much chance of the official getting hold of the wrong end of the stick if they can even find the stick at all. Always confine yourself to written communications then you have a hard copy of what has been discussed.
Customer: replied 1 year ago.
OK thanks - sorry for the delay I have been working. So I have completed my calculations (attached) - can you please take a look and confirm this reconciles back to your comments?Cheers
Expert:  bigduckontax replied 1 year ago.
Income is 10936 + 3580 + 28747 + 6864 = 50127. Personal Allowance 15/16 is 10600 so 39527 is exposed to Income Tax, 31865 @ 20% [6373] and 7662 @ 40% [3065]; total tax bill GBP 9438.
Customer: replied 1 year ago.
Hi - that is for 16/17 on the attachment sorry hence the 11,000 PA.Does what is attached make sense or I can call and talk through and you can advise if any errors?Thanks
Expert:  bigduckontax replied 1 year ago.
50127 less 11000 = 39127 chargeable 32010@ 20% [6402] & 7717 @ 40% [3847] = 10229 tax due. The Chancellor did warn in his budget speech that the better off were to be more highly taxed then changed the 45% bracket.
Customer: replied 1 year ago.
Have you looked at each scenario? Is that scenario 1 and you're saying my calculation is wrong? So where are my figures wrong on the calculation? Is it possible to annotate?What are your comments on the other scenarios?
Expert:  bigduckontax replied 1 year ago.
You have given me your income so, with respect, the scenarios are irrelevant. Your tax code should reflect the necessity to recover the additional 1983 odd of tax possibly undercharged.
Customer: replied 1 year ago.
My income is different in each scenario !
Expert:  bigduckontax replied 1 year ago.
I am opting out of this question. I have given the basic position and the various options can be workd through from there.
Customer: replied 1 year ago.
I would like this question to be sent to a new expert please. My daughter has used an expert previously - her name was Fiona Miller , she recommends him from her account. I can search the name if required.
Expert:  bigduckontax replied 1 year ago.
I have opted out; this post is merely to clear my question list.

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