Paphos People

I remember a time when HMRC were 'obliged' to ensure you had only paid any tax due, or was I just naive?
Given the recent changes to allow you access to take a lump sum from your pension, it would seem they have decided to adopt what I view as a 'cynical practice', what do you think?
This article explains the situation for those that have already, or intend to take a 'draw-down' from their pension pot;

http://www.express.co.uk/finance/personalfinance/788759/Pension-freedoms-tax-How-to-claim-back-emergency-tax-on-withdrawals

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If you take any kind of lump sum at the beginning of the year, then, in the first month tax would be taken at a higher rate possibly 40%.

However, in subsequent months, a refund would be paid. It will continue to be paid until the overpayment is adjusted.

This assumes that you will be drawing a monthly payment from the same pension company that paid the lump sum.

At the end of the tax year, if you have overpaid taxes on any payments made, the individual can submit a claim for a refund.

If the lump sum was for other reasons, capital gains etc, then, again, a claim can be made in the next tax year.

I think PAYE has always been like that. Your annual allowances are divided by 12 and multiplied by the tax month. It used to be weekly as well. Tax is paid on the sum less the allowances.

I don't think anything has changed.

It has for me, I'm now tax resident in Cyprus, with no taxable assets in the UK!

I think it's wrong that HMRC in the UK have effectively given themselves a free '12 month loan' from my money.

I don't know if they can 'earn interest' on the lump sum whilst I await their 'refund', just that I am precluded from doing so by their unfair process.

Hence my view it is an unjust cynical practice, compounded by employing an emergency code, when they are already aware of my tax position.

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Whenever I have overpaid tax they have always given me interest earned on top of any repayment.

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Age improves with good wine

If that is the case, it's even more illogical that they apply an emergency rate which I'm guessing would eventually cost them money in the majority of cases.

However (from a cynical perspective IMHO), the only reason they would do this is if they were benefitting from the process by say 'playing the money market' like the banks do.

The other thing with this is that having being subjected to this farce, YOU (the injured party) have to reclaim any overpaid tax!
The whole process appears flawed & 'designed' to increase the administration required needlessly. Anything to keep the paper shufflers in employment!

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So what do you suggest?

You say that they taxed you on "emergency code". Do you mean at the full rate? How could they do otherwise, how can they access your tax code? It is not the government doing this, it is the pension company.
All in all, I cannot see an issue. It is just ordinary people going about thir business. I cannot see the reason for all this name calling.

Not really....they give you market rates interest, whereas if you are late you get charged 8%. That is a fair profit to me.

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Artlin,
You mean they just 'decided' to apply emergency tax, rather than let HMRC deal with it on your tax return?

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That is correct.

Anyone paying any kind of taxable income will apply the full rate. That is to say, no allowances will be taken. The taxable rate will be at 20% for the first x amount rising to 40% if necessary.

How could they do otherwise if they are not in possession of your tax code.

For most people taking one or more pensions, the tax free allowance is firstly applied to the state pension. Any remaining allowance would then be applied to the next biggest private pension, if applicable.

If you take a lump sum from that same pension company then they would add that to the monthly pension amount thereby sending it over the tax free allowance amount for that month.

Just the same, say, as getting a large bonus or overtime payment whilst at work. Once your monthly allowance is consumed then tax is paid at the full rate. BTW it is not emergency tax! It is just tax at the full rate.

Again, if it is all coming from the same pension company then expect a rebate from them until the end of the tax year.

Any overpayment after that has to be claimed. It will not be automatic.

I would not worry about being ripped off by HMRC. They will always settle overpayments promptly and to the penny.

Hope that helps.

Artlin is right. In the absence of any tax notifications an employer, or benefit payee of whatever denomination is obliged by law to adopt the latest tax rates. Without that they will apply the week 1, no allowances basis. Once in receipt of the appropriate tax code then any overpayment will be automatically refunded.

Key is to always ensure that anyone responsible for paying out funds to you is in receipt of up to date tax coding/info. Without that they are legally required to apply the latest guidelines. Which are rarely, if ever in your favour!

My point is exactly that they are, yet choose to apply "the latest guidelines".

Papershufflers rule the uk!

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