Claimants have been urged to check their details are correct
State pensioners are being warned to double-check their records are accurate. If your details are not correct, you could get a unexpected tax bill from HMRC.
Like numerous other DWP benefits, the state pension is subject to income tax. This means you could pay the wrong amount to HMRC if your information isn’t kept current with the tax office. HMRC recently sent out a reminder which applies to pensioners and in fact, all taxpayers, about keeping your records up-to-date.
An HMRC spokesperson explained: “Everyone is responsible for ensuring their own tax code is correct, and they can manage and update their tax code quickly and easily on our app or via their online tax account.” Getting your tax code right is vital, as it determines how much income tax gets deducted from your earnings.
Grace Hardy, finance content creator and CEO of Hardy Accounting, said that those claiming taxable benefits – including the state pension, ESA (Employment and Support Allowance) or Carer’s Allowance – are particularly at risk of incorrect tax payments. She said: “If the claimant is in receipt of a taxable benefit – such as Carer’s Allowance or the state pension – and this isn’t accounted for in their tax code, it is possible they could be paying too little tax.
“They may end up with an extra bill at the end of the tax year as a result.” Every person can pocket up to £12,570 annually tax-free under the personal allowance.
Changes to tax codes
The full new state pension currently sits just £600 shy of this threshold, paying out £230.25 weekly, totalling £11,973 per year. Should you still be working or drawing from a private pension pot, pushing your combined earnings beyond the personal allowance, HMRC might tweak your tax code to claw back what’s owed on your state pension from your salary or pension payments.
An HMRC guidance video outlining how the taxman collects dues on state pensions clarifies: “If we can collect all the tax due this way, we’ll do it by changing your tax code. You don’t need to do anything.”
Even so, state pensioners would be wise to double-check their tax code and verify they’re being taxed properly. Your tax code can be accessed via the Government website or the HMRC app.
There’s also a handy online tool on the gov.uk website to decode what your tax code actually means. Ms Hardy outlined the steps to take if you suspect you’re being overtaxed.
She said: “Firstly, you should check who is responsible for the error: if the tax code is incorrect, it will likely be HMRC’s error; if the error surrounds benefit entitlement or payment amount, this will likely be the DWP’s responsibility. If the claimant has uncovered a tax issue, they can contact HMRC directly to resolve the issue; they can equally ask an accountant to amend the error on their behalf.”
When should I check my tax code?
In a more general piece of advice for taxpayers, Ms Harding spoke about eight situations where you should “always” check your tax code:
- When you start a new job
- When you leave a job
- If you have more than one income
- If your income changes
- If you earn over £100,000
- If you start or stop receiving benefits
- If your pension starts or stops
- After major life events that may have affected your income or health.
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