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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5113
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Taking an early pension as well as still working, My work

Customer Question

Taking an early pension as well as still working, My work wages are on the edge of the 40% bracket so I use AVC's to lower the level well below the 40% tax limit.

I got a wage slip with my pension payments on it and all of it was taxed at 40% under tax code D0.

1. How can I balance my income and avoid the automatic D0 tax levy at 40% on my pension payments?

2. Even though the combined total of my wages and pension are below the 40% bracket due to my AVC's I am still getting pinged on the pension payments.

2. How can I reclaim over paid tax from this circumstance?
Submitted: 3 years ago.
Category: Tax
Expert: replied 3 years ago.

Hello and welcome to the site. Thank you for your question.

D0 tax code is used when all your income is taxed at the higher rate of tax - currently 40% (most commonly used for a second job or pension).

You may be making AVC contributions to lower your taxable income to remain within the basic rate band but when added to your pension if your total income exceeds £41,450 then the excess would be taxed at 40%.

If you wish your total income to remain within basic rate band and be taxed at basic rate then you need to:
- make sufficient AVC contribution to achieve it
- advise HMRC that your income after AVC contributions would remain within Basic rate of tax and request they issue you with BR code instead of D0 code.

You can reclaim over paid tax
- by completing a tax return and showing your AVC pension contributions to get full relief
- you can telephone or write to tell HMRC why you think you've paid too much tax on your earnings or pensions for the tax years from 6 April 2009. They may already have everything they need to check your claim. If not, they'll tell you what information they need. HMRC will send you a P800 Tax Calculation and any refund due.In most cases you'll get back the tax you've overpaid as long as you claim on time. Read the section 'Time limits for claiming back tax'.

More information on this can be found here

I hope this is helpful and answers your question.

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