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Your coding notice

We describe in our Low income workers section in general terms how to check your PAYE coding notice. You will have tax deducted from your occupational and private pensions in much the same way that employees have tax taken off their wages. Indeed, you might be drawing a pension and still working, in which case PAYE will apply to both.

To give a little more specific help to pensioners, however, we give below some PAYE and coding examples.

Martin - BR code

Martin who already has one occupational pension starts to receive a second pension. He is told that code BR is to be operated on the new pension. For 2012/13 each monthly payment of £200 will be taxed at the basic rate of 20% so Martin will actually receive £160 in his hand.

Evelyn - 0T code

All Evelyn's personal allowances are used against her state pension so she has received an 0T code from HMRC to be used against the occupational pension that she also receives. Her occupational pension before tax for 2012/13 is £1,000 a month. Because she has no personal allowances to set against this pension, Evelyn will be taxed at the 20% rate on the full £1,000 = £200.

Katy - D0 code

Katy gets an occupational pension of £1200 a month in addition to her other taxable income. She has a code D0 in respect of this pension. Each monthly payment she receives will be taxed at 40% so Katy will receive the net amount of £720 in her hand.

Tom - monthly paid pension - working out tax from code number
Tom receives an occupational pension of £14,300 a year before any tax is taken off. His pension is paid monthly and his code number for 2012/13 is 205L
This means Tom has a tax-free amount of allowances of £205 x 10 or £2,050.
	£
Pension	14,300
Take off tax free amount of allowances	2,050
Pension on which Tom pays tax	£ 12,250
Tax payable
£ 12,250 @ 20% (basic rate)	£ 2,450
So the tax to be paid by Tom during 2012/13 is £2,450
The tax he will pay each month is £2,450 divided by 12 = £204.17

Harriet - monthly pension - working out tax from code number
Harriet receives an occupational pension of £3,500 a year before tax. Her pension is paid monthly and her code number is 210L. This means that Harriet has tax-free allowances to take off her pension of £2,100.
	£
Pension	3,500
Take off tax free amount of allowances	2,100
Pension on which Harriet pays tax	£ 1,400
Tax payable
£1,400 @ 20% (basic rate)	£ 280.00
So the tax to be paid by Harriet during 2012/13 is £280.00
The tax she will pay each month is £280 divided by 12 = £23.33

Jay - monthly paid pension - working out tax from K code
Jay receives an occupational pension of £12,000 before any tax is taken off. His pension is paid monthly and his code number for 2012/13 is K119
This means Jay has minus allowances of £120 x 10 or £1,200. These minus allowances are treated as additional income.
	£
Pension	12,000
Add on extra income (minus allowances)	1,200
Pension on which Jay pays tax	£ 13,200
Tax payable
£13,200 @ 20% (basic rate)	£ 2,640
So the tax to be paid by Jay during 2012/13 is £2,640
The tax he will pay each month is £2,640 divided by 12 = £220

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