HMRC (the government department that collects taxes) will use information from The Department of Work and Pensions (DWP) about how much State Pension you will get in the tax year. They also use information from other pension providers or employers to work out how much tax should be taken out (deducted) from each source of income.
How HMRC tax your pension
Personal Allowance is the amount of money you can receive before you pay tax on it. It also applies to the money you get from your pension.
The DWP can’t deduct tax when they pay your State Pension, so your Personal Allowance is allocated against this pension before any other income. In 2025/26, the Personal Allowance is higher than the basic State Pension, so you should have some Personal Allowance left over than can be set against other income.
HMRC will tell one of your pension providers or employers to use a code that applies the rest of your Personal Allowance on one of your other sources of income.
If you had this income before you started getting the State Pension, you will be getting less overall pay because more tax will now be taken from this income (but none will be taken from your State Pension).
If you have other sources of income
If you have more than one source of income that is taxed by PAYE such as wages or another private pension, HMRC will typically issue a BR code for the other sources. This means that all the income from these sources will be taxed at 20%, which is the current basic rate.
Forms to look out for
At the end of the tax year in April, employers and pension providers tell HMRC how much each person was paid and how much tax was taken. A copy of this information will be sent to you, in a form called a P60.
HMRC take this information and work out if you have paid too little (underpaid) or too much (overpaid) tax. If you have under- or over-paid tax you will be sent a form called a P800.
If the P800 shows that not enough tax has been paid, HMRC will change the PAYE tax code your pension provider or employer has been using to try and get the money back. You will receive a letter telling you what the code is. You should check this carefully.
Find out more about PAYE tax codes
Paying tax on income outside PAYE
If the underpayment of tax cannot be recovered through PAYE because your other income doesn’t come from a pension provider or employer, or there are other reasons why the tax can’t be collected this way, HMRC will issue a form PA302 showing the amount of tax you owe.
Check the PA302 carefully and contact HMRC within 60 days if you don’t agree with any of the figures. If you don’t contact them, the tax becomes due and payable on the following January 31. The form has instructions on how to pay the tax.
If you have overpaid tax the P800 form has instructions on how to claim a refund.