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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am a UK Citizen living in UK. I am 50 years of age and retired

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I am a UK Citizen living in UK. I am 50 years of age and retired from public Service in Jan 2014. I receive a pension of approx £19,000 per annum. I am applying for a private sector job which if I am successful will pay £20,000 to £25,000. How much tax will I be liable for?

As you are under 65 years of age, you will be entitled to a personal allowance of £10,000 for the 2014/15 tax year which should be used against your pension as that source of income will be with you for the rest of your life. You will pay tax at 20% on £9,000 of your pension. The tax code should be 1,000L.

The 20% tax band covers the first £31,865 of taxable income so you have £22,865 of that to use against other sources of income before you start paying tax at 40%. So, if you took a job at £25,000 per annum, in a full tax year you would pay tax at 20% on £22,865 and at 40% on £2,135.

If your new job's salary will keep you in the 20% tax band, your tax code for it should be BR (20%). Your new employer should be set up to inform HMRC directly of you as a new employee so you should look out for a tax code in the post. The employer will be notified electronically. You will need to liaise with the payroll section to make sure any new code is correct or you may find yourself underpaid. You may need to contact the tax office on the number here to make sure that the correct tax code is issued or an incorrect one is amended. You will need to ask your new employer for the PAYE reference before you call the tax office.

I hope this helps but let me know if you have any further questions.
Customer: replied 4 years ago.

Hi Tony Tax,


Many thanks. Just to clarify I have understood the last part correctly.


My new employer will set me up as a new employee. I will need to obtain the tax reference number from my employer and then contact HMRC to make sure they are appraised of my pension and my new employment situation, so a relevant tax code reflecting this position can be obtained. If I do this I shouldn't end up under paying tax on my earnings and pension.





You will pay tax on both sources of income. What you need to make sure of is that you don't get another personal allowance against your new salary because that will result in you owing tax which may build up to a sizeable sum before the mess is sorted out.

Normally, this would all happen automatically. You would pass your P45 to your new employer and they would operate the tax code shown on that form against your salary. It may be that your pension is having 20% tax deducted at source in which case you may choose to leave it like for the 2014/15 tax year at least. If you sent your P45 to your pension payer, they may be operating a code which includes your personal allowance in it. You need to know where your personal allowance is being used, if at all.

A new employee should be notified by the employer to HMRC electronically. However, the tax office may not have linked your pension to your tax file and issue a tax code not having taken account of the pension and what rate of tax you paying on that source of income.

It might be worth finding out from your pension payer what tax code they are operating and then call the tax office to make sure they are aware of the pension. That way, when they are notified of your new job, they will have all the information they need to review your tax code situation and issue an appropriate one to your new employer and to you. Whatever you, do not assume everything will be alright. You have to make sure it is.
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