Important changes for taxpayers with only a state pension
Even if the state retirement pension is your only taxable income, you must usually complete a self-assessment tax return if the total amount of pension received in a tax year is more than your tax-free personal allowance. Until now, this has been the only way in which tax can be paid on the taxable portion of the pension income. However, for some people this is about to change for the 2016/17 tax year.
Pensioners who first began to receive their state pension on or after 6 April 2016 and who have no other taxable income will not have to submit a tax return in order to pay tax on the taxable part of their pension. Instead, HMRC will be sending their own calculation of the tax owed for the 2016/17 tax year, and this will be called a ‘simple assessment’. This will also be available to view in your personal tax account.
How does simple assessment work and what should I do with it?
The simple assessment will be based on the details of your state pension that HMRC receive from the Department for Work and Pensions (DWP).
It is important that you check the figures used in the simple assessment calculation carefully as sometimes mistakes can be made. If you are not sure how to calculate your taxable state pension, read our guidance.
If you think any of the figures are wrong then you have an initial appeal period of 60 days from the date of the simple assessment to query them with HMRC.
How and when do I pay the tax?
Any tax owed for 2016/17 on the simple assessment will be due for payment by 31 January 2018, the same date as the tax would have been due if you had completed a tax return, or three months after the date of the simple assessment if that is later.
Payment must either be made online via your personal tax account, or by sending a cheque, made payable to ‘HM Revenue and Customs only’, to
You must put the reference number from the simple assessment letter on the back of the cheque. There is no payslip to send with the cheque so we recommend you send a brief covering letter with the cheque explaining you are making the payment to settle a simple assessment tax bill for the 2016/17 tax year. You may also wish to staple the cheque to the letter.
Is there anything else I might need to do?
If you have received taxable income or made any taxable capital gains in the 2016/17 tax year in addition to your state pension income, and HMRC are not yet aware of this, you must tell HMRC immediately and at any rate by 5 October 2017, even if you receive a simple assessment. It is likely that you will still be required to complete a self assessment tax return if this is the case.
What about if I started to receive my state pension before 6 April 2016?
HMRC had originally intended that all taxpayers who completed a tax return just because their state pension was more than their tax free allowance would receive a simple assessment calculation for the 2016/17 tax year, and so there would be no need for anyone in this group of taxpayers to complete a self assessment tax return. (See our earlier news item in April 2017, If you’re a pensioner hold on a minute before you fill in that tax return.)
However, HMRC’s testing of this new process has lasted a little longer than was originally intended and so now it will only be those who began to receive their state pension after 6 April 2016 who will be sent the simple assessment. Therefore if you started to receive your state pension before 6 April 2016, and it exceeds the personal allowance of £11,000 for the 2016/17 tax year, you must continue to file a self assessment tax return for 2016/17 as for previous tax years. You should as usual have received a notice from HMRC in April 2017 requiring you to file a self assessment tax return for the 2016/17 tax year.
Some other pensioners may also have been asked to complete a self assessment tax return for different reasons and it is still important to file this by the deadline in order to avoid penalties.
If you are in any doubt as to what you need to do, you should contact HMRC as soon as possible.