Tax Code

[Charliesdad]

Oct 22 I semi-retired and claimed my company pension. My tax code was 1383m. Last month, I also started receiving my state pension and my code has changed to 323m. Is this tax code correct? 

[bhg481]

Since you already pay income tax your old age pension, which is taxable, will be added to one of your other taxable incomes for the tax to be deducted, thus affecting your tax code.

[Charliesdad]

Bhg481. Thank you for that. I appreciate the code change but was looking at the difference. 1383 means I can earn 13,830 before being taxed. Does 323 mean I get taxed from 3,230? Seems a very big drop.

[bhg481]

The difference should be the annual OAP that you get. There may be adjustments for the date your pension started ie, to allow for a part-year. I can't remember exactly how mine was done (it was 15 years ago), so it could be that this first adjustment covers a year and part of a year.

The 3230 is the amount of your company pension before you are taxed on it. No tax is taken directly from your OAP, the value of your OAP is added to your company pension to calculate your annual tax bill.

[Charliesdad]

Bhg481 thank you for the update and explaining the new code. I do however still get PAYE, so three income sources. How does the new code impact my paye?

[bhg481]

As I said earlier, it's about 15 years since I had a salary as well as pension incomes and I can't remember exactly how it was done. I might have had 2 tax codes, one for my salary and a different one for pensions; I just can't remember. Maybe someone more recently retired can help you out.

[Charliesdad]

Bhg481 I meant to add that I've just seen my salary for this month and I'm down around £250 compared to last month. I'm wondering about reducing my hours further to off set the extra tax

[Hopkirk]

Your tax code will either be applied to your employment or your company pension. I suspect it is your employment, and your company pension will be taxed at basic rate (20%).

This means the tax deducted from your employment will increase, effectively taxing your state pension.

However it is done, some time after the end of the tax year they will total everything up to see if you paid the right amount of tax.

To balance the bad news, you should no longer be paying national insurance on your earnings.

 

[Redhelen72]

I know when dad got his RAF pension, his old age pension, tax credits for his step children and his small wage from a part time job - his tax went up dramatically.

He ended up giving up work and was only £50 a month worse off

[bhg481]

Well, working fewer hours will certainly reduce your tax bill but only because it will also reduce your income by a lot more. I'd be tempted to wait and see what your tax codes are when we move into the new tax year in April when the codes will be based on full-year salary and pension predictions.

[Hopkirk]

When I get to that age I plan to defer taking my state pension until I reduce my hours or stop working.

[bhg481]

To embellish Hopkirk's last sentence, you'll also be eligible for a bus pass and free prescriptions.

[Charliesdad]

Bhg481, I got the free prescriptions aged 60. Had to wait until last month, to reach 66, to get bus pass.

[Maydup]

The tax code looks drastic but is probably correct as you now have the state pension to take into account. Take the annual value of your state pension off your original tax code and that's what you can earn tax free. If that is used up by a private pension then as far as I can see, you have no tax allowance left for your earnings and will be paying tax on 100% of them. 

 

[ladybirder]

Should find all your answers here Charlesdad.

https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2023-to-2024

 

[newmodarmy]

Yes it looks correct. I like oth⁷er income from pensions the state pension isn't taxed at source, so to collect any tax due an adjustment is made to your code for your other earnings and pension.the state pension is approaching £10000 pa do your code should reduce by around 1000 

[newmodarmy]

Actually, now I'm reading this on my laptop rather than my tiny phone screen, I have just noticed that the state pension only started in October so this tax year your state pension will only be for 6 months so approaching £5000, so the tax code change seems too high or may reflect other factors. You should have received a coding letter explaining it though.

[Hopkirk]

If they have stopped charging you national insurance, the drop in your take home pay shouldn't have been much.

[newmodarmy]

Hi Hopkirk- as Charliesdad is semi-retired, there's a good chance he won't have been paying NI since Oct 22 anyway though unless his earnings from employment exceed the threshold which is around £12000. (There's no NI due on either pension,)