Tax bill for pensioners

Silverbrooks

That was years ago. It doesn’t work like that now. Tax codes are not automatically sent out. Much is paperless via Gateway. Where paperless, changes in tax code are notified by email.

It is highly unlikely that HMRC would allow arrears of £800 to be paid off at £5 per month. The normal length of a payment plan is twelve months or possibly 2 to 3 years. £5 pm wouldn’t even come close.

If the arrears cannot be collected through an adjustment to the tax code which, if the State Pension is already in excess of £12,570, would require an even bigger negative K code, HMRC will demand a direct payment.

If time to pay is requested:

HMRC will ask for

• Monthly income from all sources.
• Assets including savings accounts and physical assets that could be sold to raise money to pay the outstanding tax.
• Monthly regular outgoings on living expenses.

HMRC will expect someone to use funds from savings or investments to reduce the tax that is owed.

Any payment plan will also include interest that accrues on late payment.

From 6 April 2025, late payment interest is set at base rate (which is currently 4.5%) plus 4% so that will be 8.5%. It is currently base rate plus plus 2.5% so 7%. Those rates are set high to encourage people to pay promptly.

That was years ago. It doesn’t work like that now. Tax codes are not automatically sent out. Much is paperless via Gateway. Where paperless, changes in tax code are notified by email.

I still receive one.

Allira

Silverbrooks

That was years ago. It doesn’t work like that now. Tax codes are not automatically sent out. Much is paperless via Gateway. Where paperless, changes in tax code are notified by email.

It is highly unlikely that HMRC would allow arrears of £800 to be paid off at £5 per month. The normal length of a payment plan is twelve months or possibly 2 to 3 years. £5 pm wouldn’t even come close.

If the arrears cannot be collected through an adjustment to the tax code which, if the State Pension is already in excess of £12,570, would require an even bigger negative K code, HMRC will demand a direct payment.

If time to pay is requested:

HMRC will ask for

• Monthly income from all sources.
• Assets including savings accounts and physical assets that could be sold to raise money to pay the outstanding tax.
• Monthly regular outgoings on living expenses.

HMRC will expect someone to use funds from savings or investments to reduce the tax that is owed.

Any payment plan will also include interest that accrues on late payment.

From 6 April 2025, late payment interest is set at base rate (which is currently 4.5%) plus 4% so that will be 8.5%. It is currently base rate plus plus 2.5% so 7%. Those rates are set high to encourage people to pay promptly.

That was years ago. It doesn’t work like that now. Tax codes are not automatically sent out. Much is paperless via Gateway. Where paperless, changes in tax code are notified by email.

I still receive one.

It only applies if you positively opt to be paperless. I haven’t, I prefer to have written evidence in case I need it later.

There's nothing like evidence in writing, Casdon.

I remember years ago going through some old paperwork and finding old payslips, realising I was owed tax from when I left work when pregnant.
I had under a week to the deadline to claim, a young man at the tax office in Exeter was very helpful and expedited it. The cheque wasn't for much but very useful as we'd just moved house.

Sometimes decluttering isn't such a good idea.

Doodledog Perhaps your mum has records? We've records of everything, I sort through and give our accountant what she'll need.

Maybe your mum might deliver records to her accountant?

Allira

There's nothing like evidence in writing, Casdon.

I remember years ago going through some old paperwork and finding old payslips, realising I was owed tax from when I left work when pregnant.
I had under a week to the deadline to claim, a young man at the tax office in Exeter was very helpful and expedited it. The cheque wasn't for much but very useful as we'd just moved house.

Sometimes decluttering isn't such a good idea.

I agree, I still have my bank statements sent, for the same reason too, I do online banking, but I find it easier to check things are right on paper - I must have a short attention span I think.

I have advised her to phone them, as they will be able to explain without speculation. She has until June to pay, so I suggested she wait until after 5th April, as they will be busy just now.

Yes. They are always busy but there will be people keen to get the correct tax code before first pay day after 6 April 2025.

Feel free to DM if I can help in any way. It was my profession for 50 years, both sides of the fence.

I'm sure it will be one of the two things explained upthread, or a combination of the two, and possibly relates to two or more years. Whatever it is, it sounds like HMRC can't recoup through a tax code adjustment, as explained.

does your mother have a pension besides the state pension - even just a few pounds?
if so then there is the option of having any payment due on a weekly/monthly basis
the reason for the amount is probably due to the rise in interest on savings accounts . I was not that long ago when interest rates were about 1% now over 4%. Compound interest on savings means the bill will rise

Thanks, Silverbrooks. I think you're right and it will be tax on savings. Mum's affairs are not complicated, so she should be able to sort it out over the phone, but I'll bear your offer in mind if she needs anything explaining.

Doodledog

Thanks everyone. I have suggested that my mother rings them to ask for clarification.

This would be your best move. I doubt anyone on here can give you the right answer.

What a coincidence! On Saturday I received three letters fromHMRC - two were informing me of my tax codes for last year and the coming year, and one was a demand for over £1400 of tax that I owed. I felt like a criminal - I've never owed that much tax, although it was probably to do with finally getting my SP in July last year and also the interest on my savings which have accrued more interest than anticipated due to the rise in interest rates over the last couple of years.

I paid it through online banking this morning. I'm sorry to say that I'm one of those people who do what they're told by the tax office - I know several people who have argued the toss and ended up paying more than the original amount demanded, although their income sources are much more complicated than mine! I just feel so fortunate that I have enough income through work pension, state pension and savings to be in the position to be able to pay and contribute via tax. I was the same when I was working full time from 16 until I was 62 - the only figure I took real notice of was my take-home pay. If it was enough to live on, that was a positive result.

I really feel for those who are struggling in these difficult times.

This often happens when someone first receives State Pension. In the ordinary scheme of things, DWP tell HMRC what SP has been awarded (and do so each year) but there is often a time lag and the tax code isn’t adjusted to take the pension into account in the first year. When that happens, people need to be putting aside 20% or 40% of the SP to cover the eventual tax bill.

State Pension is also taxed on the “arising basis” as opposed to the “receipts basis” so you will be assessed on what is due to be paid for the tax year not what is actually paid in the tax year. These amounts can differ as SP in paid in arrear.

For example, the SP rises each year from the first Monday on or after 6 April. Depending on your payment date you may receive a payment in April at the old rate and not receive the payment at the new rate until May. Nevertheless, your tax for the year will be assessed at 13 four-weekly payments at the new rate. For most people this won’t make a difference year-on-year but it could for people who are just on the cusp of paying tax or those whose marginal rate is close to 40%.

I reached SP age in summer on 2021. Although I claimed the pension four months before my 66th birthday, when I was invited to do so, it took until almost the end of the calendar year until it was paid. It was backdated of course but my tax code for 2021/22 was not adjusted. The delay was due to the pandemic backlog and other complications. I imagine there were similar delays at HMRC. I owed £3,000 tax but had put the money aside to pay it.

It could be from her Savings Accounts the interest is not taxed at source but is reported to the HRMC. If she has received over the permitted amount of interest. I'm not 100 percent sure what the amount is but I think it's £500. Only ISA's are tax free interest.

It’s £1000 Maggs.

Just after posting this morning two brown envelopes arrived. One said I owed over £800 due to savings and said this was to be coded out.or I could pay it through a personal tax account. I don’t have such an account as I am 84 years and want to avoid any complications I don’t need to have. Also the other letter was from the tax office giving me a new higher K code. As this starts in a few days I didn’t want to chance paying it and still being taxed at a higher rate.Oh! for the good old days when we were taxed at source and knew where we were.

The flip side of that was that there were a lot of people who had tax deducted from savings who were not liable to tax and then had to reclaim it. That involved HMRC in a lot of work getting tax returns from people on low incomes.

Setting up a personal tax account is very simple. You will be allocated a 12 digit Gateway ID and invited to set up a password. Then you can see at a glance all your tax assessments, income and tax codes. If your income changes in year you can notify HMRC online.

I self-assess each year. It's a simple process. HMRC agree the liability online but also send a Self Assessment Statement showing the amount to pay and ways to pay. These are: online banking, phone banking, CHAPS, BACS, card payment, bank in branch or cheque through the post to HMRC. The giro slip is attached to the statement.

Not sure I agree that self assessment is a simple process Silverbrooks, I do it every year, and still find it an absolute pain, I loathe it. It must be daunting for those who are receiving notice that they need to complete it in future, and tax bills for the first time, even though the same thing happened last year for thousands, so it’s not a surprise when it comes in the post.

I'm a retired accountant and can't agree that anything about tax is simple to many non-accountants or well-informed numerate folks. Some people find handling numbers doesn't come naturally to them, just as I can't paint, draw, write poetry or sew anything more complicated than a button!

The easiest thing to do is add up all the sources of income in a tax year (ending 5th April annually), using the Gross (before tax is taken off) figures, ignoring interest from ISAs (or other non-taxable income such as interest from some National Savings investments) and the first £1,000 interest from other savings, and deduct £12,570 for the annual tax-free personal allowance. The remaining figure will be taxed at 20%. If this figure is more than the tax already paid on the various sources of income then the balance is payable. Yes, apply to pay in instalments if it is difficult to pay all at once.

Your mum should have had communication from all her sources of income for the relevant tax year which will show the gross amount earned and the tax deducted "at source" - and as others have said no tax is deducted nowadays from interest received. A mistake I believe especially now that interest is not as insignificant as it used to be.

Good luck with it all.