Unexpected tax bills, refunds, or P800 calculations

Pensioners face the most complex PAYE tax codes known to the tax system. This is the result of many factors such as:

1. How the state pension is taxed – which is normally by changing the PAYE tax code used for a private or occupational pension
2. How the additional tax-free allowance due to people aged 65 and over is affected by your level of income (over £25,400 in 2012/13)
3. The restricted availability of the Married Couple’s Allowance  and the complex calculations needed to give tax relief at the correct rate of 10%
4. The fact that many pensioners have a number of different sources of income, which could include state pension and other taxable benefits, private and occupational pensions, part-time work, rental income, savings income and even self-employment

One problem with this complexity is that mistakes are possible! This means that the wrong amount of tax is paid, which can lead to unexpected refunds or tax bills. HMRC reconciles the information it receives about each individual from pension providers, employers, and the Department for Work and Pensions. This happens some time after the end of the  tax year. The result could be that you receive a P800 tax calculation showing a refund or a underpayment of tax. (Even if you do not, you should still check your tax codes as there are some errors that it would be difficult for HMRC to spot). If you receive a calculation, you should check it – taking advice from HMRC (or TaxAid) if needed. There are circumstances in which HMRC will consider writing off unexpected tax bills.

There is information about how to check the calculation and about writing off unexpected tax bills on the HMRC website at http://www.hmrc.gov.uk/P800/ and http://www.hmrc.gov.uk/esc/esc.htm

Additional Guidance

There is more detailed guidance on underpaid PAYE on the TaxAid website in the ‘Problems Paying Your Tax’ guide , at  http://taxaid.org.uk/guides/tax-debt/paye . The guidance includes some standard letters you can use.