One of the ‘top 10’ most common tax mistakes people make is not telling HMRC they are about to retire, according to the Age UK.
The charity has warned retirees could end up paying the wrong amount of tax if they don’t tell HMRC about their State Pension. You must tell HMRC about any changes to your taxable income – see the contact details below.
Anyone expecting to retire in the next few months has been urged to ensure their tax office knows in plenty of time if they expect to start receiving a pension, so they can sort out their tax code. This is particularly relevant for people who are self-employed.
HMRC will usually contact people to explain how their individual tax code has been worked out, which is calculated based on their tax-free Personal Allowance and income they have not paid tax on.
They also consider the value of any benefits someone receives from a job, such as a company car.
According to The Low Incomes Tax Reform Group, one of the main causes for tax code problems is the Department of Work and Pensions (DWP) does not operate Pay As You Earn (PAYE) on their State Pension.
A statement said: “This forces the PAYE system to collect tax on two sources of income through one tax code.
“For example, you may pay tax on both your State Pension and an occupational pension through the tax code issued for your occupational pension.
“In the first year you get your State Pension, you will more than likely receive payment for only part of the year based upon your date of birth.
“HMRC will normally include a full year’s pension in your coding notice and then tell your employer or pension payer to use a special type of code, called a week 1 or month 1 code, to make sure that you only pay the right amount of tax.”
People do not receive a P60 form after the end of each tax year on their State Pension, so they should keep their own records of that income. If they receive more than one occupational or personal pension, they will need their own tax code.
Your pension provider is likely to inform HMRC when you start taking pension benefits but your employer is not likely to.
When you are nearing retirement, it is advised to request a BR19 State Pension forecast which can be sought online at www.gov.uk/government/publications/application-for-a-state-pension-statement.
To inform HMRC about changes to your taxable income, go to www.gov.uk/tell-hmrc-change-of-details/income-changes or call 0300 200 3300 (have your personal details, National Insurance and tax number to hand).
As ever, if you are unsure it is always best to seek professional financial advice to make your retirement and pensions arrangements. We are of course always happy to advise if you wish to contact us.
