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Where Taxpayers and Advisers Meet

Being taxed twice SA and PAYE. Pension/property income

rmim
Posts:37
Joined:Sun Mar 13, 2016 5:15 pm
Being taxed twice SA and PAYE. Pension/property income

Postby rmim » Sun Jul 30, 2017 9:54 pm

HI All,
I’m in a right pickle – please help.

My dad has a spare room he rents out. Years ago he called HMRC and they arranged something so he did not have to fill in a SA and told him they would take his property income direct.

Today I see a letter that says ‘this is to tell you your tax codes(s) for the year 6 April 2017 to 5 April 2018’
Personal allowance
Less state pension
Less property income
NHS pension paymaster

From above you can see they are still using this property income in their calculations.

The trouble is I started to fill an online SA for him because the property income had changed. This was about 3 years ago! So I think he has been paying property income tax twice, they never stopped taking the other amount automatically.

It gets worse – when you use the online form it asks you if you get a pension. We click yes, as he does. There are 3 boxes, one asks your ‘state pension’, once asks for ‘other pensions’ and one ask the ‘tax taken off’. These boxes have magically been filled in already and are correct to the penny when checked against the paper work.

So we click calculate. It’s only today that I noticed it’s using his pension in this calculation and taxing him on his pension. BUT does he not already pay tax on his pension? He has always paid tax on his pension automatically (PAYE). (I think)

I have done this for 3 years. We have been paying tax on his pension and property twice??

Now I understand for the property maybe we should have called them to stop taking the money out, sadly we only noticed today. I don’t understand why is it trying to tax a pension, that as far as I know has already been taxed through PAYE?


Please help.

MichCat
Posts:39
Joined:Sat Dec 10, 2016 5:01 pm

Re: Being taxed twice SA and PAYE. Pension/property income

Postby MichCat » Sun Jul 30, 2017 10:07 pm

A tax code is used as a method for HMRC to collect tax from you throughout the year. It is just an estimate and, come the end of the tax year, it is irrelevant.

When you complete the tax return, you enter all of your different incomes and the tax that you have already paid. The tax is then calculated exactly, the amount of tax already paid deducted, and then any under/over payment is calculated.

So effectively, your tax code is just used to collect in the estimated tax, and your tax return calculates the true tax liability. You have not paid anything twice. Hope that helps!

rmim
Posts:37
Joined:Sun Mar 13, 2016 5:15 pm

Re: Being taxed twice SA and PAYE. Pension/property income

Postby rmim » Sun Jul 30, 2017 10:55 pm

A tax code is used as a method for HMRC to collect tax from you throughout the year. It is just an estimate and, come the end of the tax year, it is irrelevant.

When you complete the tax return, you enter all of your different incomes and the tax that you have already paid. The tax is then calculated exactly, the amount of tax already paid deducted, and then any under/over payment is calculated.

So effectively, your tax code is just used to collect in the estimated tax, and your tax return calculates the true tax liability. You have not paid anything twice. Hope that helps!
OH wow! Thanks for the help MichCat.

I see the number now! My dad has another paperwork that says he has paid £2916 (£243x12) this is what I meant by he has already paid.
Now when I did the SA form it said £2,394 due. I thought we have already paid 2916 why is £2,394 due. I did not look at the next line where it magically deducted this exact figure giving £522.00 Income tax OVERPAID.

That solves that 2nd problem the pension.

But back to the first. The property income - Or is that also incorporated into that £2916? because the £2916 say income tax for NHS PENSION and nothing about property tax.

MichCat
Posts:39
Joined:Sat Dec 10, 2016 5:01 pm

Re: Being taxed twice SA and PAYE. Pension/property income

Postby MichCat » Mon Jul 31, 2017 8:28 am

I do not know what these figures are, as you have not given any details.... BUT

For the tax year 2016/17, the tax code is irrelevant now, so should be totally ignored. The thing that is confusing you is trying to equate the tax paid to the elements in the tax code. Just think of all of the tax deducted under PAYE as just a 'bucket' of tax paid to be offset against the tax calculated on the tax return. The important bit is to get the tax return correct.

On the tax return you must make sure that you include all sources of income - so the private pensions, state pension, rental income, any interest received (other than ISA's) etc. Then make sure that any tax paid already is shown (all of the tax paid on the separate P60's etc, any tax paid on interest etc.) Then, the tax return calculation will tell you the complete tax liability for the whole year. It is only this that is important now! It will then take anything off that you have already paid in tax, leaving you with more tax to pay or a refund. It is impossible to pay anything twice, unless you make mistakes on the tax return.

For the current tax year, 2017/18 the tax code is important. Make sure that the figures are as accurate as possible. Is the figure for rental income close to the amount you expect to receive? Is the state pension figure correct? Look at the private pensions that your father receives, and make sure that the his tax code is split between them to so that he does not end up with any unused tax free allowance. The ultimate aim of the tax code is to get to the end of the tax year and for there to have not been any underpayment or over payment, but it does mean that you must inform HMRC during the year if anything changes. If not, it all gets sorted via the tax return anyway.

rmim
Posts:37
Joined:Sun Mar 13, 2016 5:15 pm

Re: Being taxed twice SA and PAYE. Pension/property income

Postby rmim » Mon Jul 31, 2017 9:59 pm

Thanks for the reply MichCat you have helped me to understand what was going on.

I'm used to doing my own tax return but I don't have PAYE - so at first glace it seemed he was paying tax in 2 places, I did not bother to scroll down to see that they deduct the amount he has already been paying monthly.

Thanks.


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