Last year, for the first time ever, HMRC joined together their many records for each individual employee and pensioner in one computer system. This is a very good thing for HMRC to have done, as it makes it much more likely that their work will be accurate in the future.
However, like many new computer systems, the information going in has produced unexpected errors coming out and although HMRC are battling hard to resolve them, they will not totally succeed before tax codes are issued (or even before tax starts to be deducted in April).
So out of the millions of pensioner tax codes going out over the next few weeks, a significant number will be incorrect.
What we shall try to do in the rest of this article is to identify for you the particular problems that you may find.
So what are the problems for 2010/11?
HMRC recently made a statement on their website acknowledging that there are problems with codings already issued.
Working with TaxHelp for Older People (‘TOP’) and HMRC, we have been trying to highlight – and hopefully help to resolve as quickly as possible – the special issues which may affect pensioners.
First, from HMRC’s statement, there is a chance that there is something wrong if you receive a 2010/11 notice of coding which:
- refers to a job or pension that finished before 6 April 2009
- is one of two or more referring to the same job (there is duplication)
- shows code ‘D0’ when your total income from employment and pensions is less than the higher rate limit of £43,875
- looks quite different from 2009/10 coding notices you received last year – for example if you have received a code beginning with the letter ‘K’ for the first time.
These are identified problems for all taxpayers, not just pensioners.
TOP have already fielded a high volume of calls from concerned pensioners which have indicated the following errors:
- Some codes do not include the State pension, or show an incorrect amount of State pension, even though this has been correctly included in the past
- Where Married Couple’s Allowance is due, it has not been included in spite of it being correctly coded in previous years (an error because the new system has not picked up the date of birth for both partners)
- Personal allowances have been incorrect or omitted altogether (probably because the allowances have been given against jobs or pensions that have ceased).
Less frequently found, nonetheless significant, issues are:
- The figure for ‘other income’ taxed by adjusting the PAYE code is incorrect
- An ‘0T’ code is given incorrectly (no allowances are allocated)
- Codes issued for the first time to incapacity benefit and employment and support allowance claimants are added to codes issued for sources of income now ceased
- Blind Person’s Allowance is omitted.
State pension amount included
One common feature of your coding, as a pensioner, is the inclusion of an amount for your State pension. If the State pension is included in your code it means that it is taxed (by reducing the allowances you are given).
HMRC obtain your pension information from the Department for Work & Pensions (DWP). But sometimes the information from the DWP may not include everything that HMRC need and HMRC are forced to put in an estimate. This may look like a precise figure, but it is still an estimate and because of the way that HMRC do it, this will be on the high side.
By the end of this February, the DWP should have sent to you a note of the State pension that you will be entitled to starting in April. So take the weekly figures you are given (leaving out any non-taxable amounts, such as an Attendance Allowance) and multiply them by 52; this should agree with your coding notice.
If it does not, then follow our advice below.
What should you do?
First, when you receive your coding notice(s), check them carefully. If you have not yet received them, do not worry as they are issued in phases between January and March ready for the new tax year beginning on 6 April. Also, not everybody will need to be sent coding notices, especially if there has been no change in your circumstances.
Nevertheless, it is wise to have a look at what tax codes are being used (look on your payslips or pension statements) and contact HMRC if you are not sure how your tax is being worked out – do not assume that all is well just because you have not been told otherwise! You can find more information on checking your tax code on our website.
Second, if you think a mistake has been made or if you are at all unsure, contact HMRC as soon as possible so that they can check the position and make any changes necessary. The telephone number to use should be given on the coding notice, or try calling 0845 3000 627 and press option two when you are given choices.
If you are a low income pensioner you can also contact TaxHelp for Older People on 0845 601 3321 (or 01308 488066) for further free assistance, but do be aware that, due to all these problems, the line could be busy.
Incorrect tax codes are often the cause of pensioners’ tax problems. Many struggle to understand the information contained in the notice of coding and how this relates to the tax due on their income, and so rely on HMRC to get things right on their behalf.
It is therefore disappointing that in the first year of the computer system’s use such significant problems have been encountered.
Unless the errors are identified and rectified in time for the new tax year many will be paying the wrong amount of tax from April. We have therefore had detailed discussions with HMRC to assure ourselves that they are doing everything possible to ensure that this does not happen. But they have limited resources and there can be no guarantees.
In the circumstances we will expect HMRC to be particularly sympathetic to the problems of pensioners, both for the current tax year and for 2010/11. We will, together with our colleagues at TOP, be monitoring the situation closely.
Contact: John Andrews (0844 579 6700 Fax 0844 579 6701)