Reached the legal retirement age? Be sure to check your tax code | Personal finance | Finance

Britons can start claiming the regular payments when they reach the state pension age of 66 and have paid at least 10 years of National Insurance (NIC) contributions. Tax codes describe how much an employer or pension provider should deduct for tax purposes from a person’s salary or pension. The Department for Work and Pensions (DWP) automatically notifies HMRC when a person has decided to claim their state pension.

This should happen around five weeks before a person reaches the legal retirement age.

State pension income is taxable income, but Brits don’t pay tax on it if it’s below the personal allowance threshold of £12,570.

In 2022-23, people who only receive a state pension receive £185.15 a week, or £9,627.80 a year.

If a person has other streams of income, such as rental property, that exceed the threshold, they will need to complete a self-assessment tax return in order to pay the correct amount of tax on their income.

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Her Majesty’s Revenue and Customs (HMRC) is responsible for sorting and assigning tax codes to every Briton, both working and retired, ensuring they pay the correct amount of tax in depending on his situation.

However, Britons are advised to always check that their tax code is correct as errors can occur in the system and if HMRC does not have the correct and up to date information.

If HMRC has incorrect information they will place a person on an emergency tax code.

Britons can find out which tax code they belong to via their personal tax account, through their payslip or by contacting the tax authorities.

If it is an emergency tax code, the tax code will display 1257 W1, 1257 M1, or 1257 X.

HMRC says on its website that the emergency tax codes are “temporary measures”.

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It said “HMRC will usually update your tax code when you or your employer give them your correct details.

“If your change in circumstances means you haven’t paid the correct amount of tax, you will remain on the emergency tax code until you have paid the correct tax for the year.”

Employers can also help a person update their tax code by providing details to HMRC. This can be a person’s previous income or pension.

The Low Incomes Tax Reform Group (LITRG) has said that one of the main causes of the problems with the UK tax code is that the DWP does not work like a Pay as You Earn (PAYE) on a state pension. .

Its website said: “This forces the PAYE system to collect taxes on two sources of income through a single tax code.

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“For example, you can pay taxes on both your state pension and an occupational pension through the tax code issued for your occupational pension.”

The LITRG explained that in the first year someone receives their state pension, they are “more than likely to receive payment for only part of the year”.

HMRC normally includes a full year of pension in a person’s tax coding notice and will then ask the employer or pension payer to use a special type of code called a week one or month code one – to make sure he pays the right amount of tax. for what they received.

The group also points out that adjustments can also be caused by employment, such as taxable benefits, special work allowances or subscriptions, and may have to be reduced in the last year of work.

This is because if someone retires in a tax year, they are unlikely to need a full year adjustment to your tax code.

The group said: ‘During the second year after retirement, ensure that any adjustments that were due in previous years of your previous employment are not simply carried over by HMRC because you had them last year.

“For example, if your former employer provided you with private medical insurance, you should verify that this benefit is not included in your coding notice for your pension.”

If people think their tax code is wrong, they can update their details online in the tax code online service or by contacting HMRC.


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