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Pension credit recipients who pay tax
The vast majority of pension credit recipients do not pay tax. The levels for pension credit have been set to reflect the higher age tax allowances that are available for those who are 65 and over. However if you are under 65 and receiving pension credit your tax allowance will only be £4,745 for 2004-05, so you could well pay tax to the right hand of government whilst receiving a credit from the left hand. You can also be 65 and over and get pension credit and pay tax, but it is less likely.
If you do pay tax in those circumstances there is a particular issue that has to be watched.
Income that is taken into account for pension credit purposes is generally after tax. In most cases the income that is declared to the DWP will easily be identified as net (i.e. after tax has been deducted). For example, someone who has a State pension and an occupational pension will be taxed under PAYE and will declare the net amount from a payslip or P60.
But what happens when you have no PAYE income and have to pay the Revenue in a lump sum some time later? You will have read the pension credit claim form and declared the gross (before tax) income and if you do not understand the basis of the pension credit system then your award may turn out to be too low.
What you need to do is to tell the DWP that you will have to pay tax. If you are not sure of the amount, then ask the Revenue how much and when you will have to pay it. When you get the tax bill, tell the DWP straight away. They may only let you backdate your claim for 13 months after their original decision.
Contact Name: John Andrews (Tel: 0844 579 6700, Fax: 0844 579 6701)