Ian Vincent Posted February 12, 2021 Report Share Posted February 12, 2021 For years I have wondered why HMRC send out the new Notice of Coding letters in February when there are likely to be changes to the tax regime in the Chancellor's budget which will require another Notice of Coding letter to be issued in April. But this year because I have too much time on my hands, I have noticed another nonsense. As a pensioner in receipt of a State Pension, my tax code is calculated on the basis that my pension is paid gross, i.e. tax free. Now for some years we have had the happy situation (for pensioners) of a Triple Lock being applied to our State Pension whereby it is increased by at least 2.5% every year, and yet my tax code for the year 2021-2022 is calculated using my 2020-2021 State Pension - Which is guaranteed to change on the 6th April! As I state in the title, it's absolute madness and a complete waste of money. Or am I missing something? Rgds Ian Quote Link to post Share on other sites
seanlen Posted February 12, 2021 Report Share Posted February 12, 2021 Yes you are missing something. My understanding is that your tax code has nothing to do with your income, it represents the amount of income that you are allowed to earn before tax. The reason they are sent out in Feb is that the tax returns for the previous tax year are due in by Jan 31 but if you want underpaid tax to be colleted by your tax code 31st Dec. This tax code run changes the code for those who have chosen to have their underpaid tax collected through their code. It is probably more cost effective to do a full run rather than pick out those who have chosen the option to collect through their code, and have hads their return in on tijme. In short your tax code has no relation to your gross income but it does impact on your nett take home. Quote Link to post Share on other sites
Ian Vincent Posted February 13, 2021 Author Report Share Posted February 13, 2021 13 hours ago, seanlen said: Yes you are missing something. My understanding is that your tax code has nothing to do with your income, it represents the amount of income that you are allowed to earn before tax. The reason they are sent out in Feb is that the tax returns for the previous tax year are due in by Jan 31 but if you want underpaid tax to be colleted by your tax code 31st Dec. This tax code run changes the code for those who have chosen to have their underpaid tax collected through their code. It is probably more cost effective to do a full run rather than pick out those who have chosen the option to collect through their code, and have hads their return in on tijme. In short your tax code has no relation to your gross income but it does impact on your nett take home. If you are on a state pension, the HMRC deduct your pension from your tax free allowance in arriving at the amount you are allowed to earn before tax and hence your tax code. So if you are in receipt of a state pension, the amount of that pension (i.e. part of your income) is directly related to your tax code. Rgds Ian Quote Link to post Share on other sites
seanlen Posted February 14, 2021 Report Share Posted February 14, 2021 It is an academic point regarding the pension being deducted, the only reason this happens is so that the tax code notified to any other provider of income ( earned or otherwise ) will enable them to deduct the correct amount of tax especially at the margins where higher rates are applicable. Its just the same with benefits for those employed and included on the P11D, these are also deducted from your code for the same reason. In summary at the end of the tax year there should be no difference. Everybody should have recieved the same amount of tax free income relevent to their tax status, if not they are entitled to a refund. The tax code is designed to be the element that regulates this. Quote Link to post Share on other sites
Ian Vincent Posted February 16, 2021 Author Report Share Posted February 16, 2021 On 2/14/2021 at 7:57 PM, seanlen said: It is an academic point regarding the pension being deducted, the only reason this happens is so that the tax code notified to any other provider of income ( earned or otherwise ) will enable them to deduct the correct amount of tax especially at the margins where higher rates are applicable. Its just the same with benefits for those employed and included on the P11D, these are also deducted from your code for the same reason. In summary at the end of the tax year there should be no difference. Everybody should have recieved the same amount of tax free income relevent to their tax status, if not they are entitled to a refund. The tax code is designed to be the element that regulates this. I understand all that but I fail to see the point of spending money sending out notice of tax code letters that will be out of date before they start. Rgds Ian. Quote Link to post Share on other sites
mkmick Posted February 16, 2021 Report Share Posted February 16, 2021 It's what they're good at, They once sent me a tax bill for £00.00 Quote Link to post Share on other sites
stillp Posted February 16, 2021 Report Share Posted February 16, 2021 2 hours ago, mkmick said: It's what they're good at, They once sent me a tax bill for £00.00 I've had several of those. Two delivered in the same post one year! They made up for it the following year, by sending me a statement that I had overpaid by £0.00, along with a warrant for £0.00. Something wrong with their algorithms I think. Pete Quote Link to post Share on other sites
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