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LITRG and TaxHelp for Older People (‘TOP’) issue a reminder to pensioners to check their tax codes for 2010/11, warning of particular problems caused by HMRC’s new computer system.

Introduction

Paying tax via the Pay As You Earn system (‘PAYE’) works reasonably well for the majority of taxpayers.  Most of your working life as an employee you will have had tax deducted by your employer through PAYE and always been square with the tax people by the end of the year. 

But things change when you get to be a pensioner, at which point you will probably have more than one source of income – for example your state pension, a works pension, perhaps another private pension and/or a part time job.  This is when you can come unstuck thinking that PAYE will continue to work as it always has done, but in fact it can be a tricky business.  If you are not careful, things can go badly wrong so that you pay too much or not enough tax.  

So what happens?  Well, someone once said that nothing in life is certain except death and taxes.  This is indeed true inasmuch as you know you will probably have to pay tax, but unfortunately how you pay it is far less certain!  You may well end up with a plethora of ‘coding notices’ from HMRC or – perhaps worse still – no coding notices at all.  So, what should you do? 

Check the coding notices you have received

The starting point is to ask whether you have received your 2010/11 coding notice from HMRC.  If yes, spend a few moments reading and trying to understand it.  You should have one for each source of pension or employment income (except the state pension which is usually taxed via some jiggery-pokery by altering your other tax codes).  If you haven’t received a coding notice for each pension and/or job, get on the phone to HMRC (see below) and ask for one. 

If you have any reason to believe your code(s) might be wrong, then the time to act is now.  The new codes for 2010/11 started being used on 6th April and you don’t want to be out of pocket.

2010/11 coding problems

HMRC have recognised that their new computer system which was introduced during the summer of 2009 is creating inaccurate coding notices.  This means that many of the millions of tax codes which have been issued in the last couple of months (and indeed which are still being issued due to delays in the new system) could well be wrong.

What should you look out for?

The following pointers will help you decide if you need to take action.  They are largely based upon TOP’s experience so far of real problems have found with 2010/11 codes. 

• As above, do you have a 2010/11 coding notice for each source of income? 
• Is your personal allowance shown?
• Is your personal allowance correct? (Aged under 65 it is £6,475; from age 65 to 74 £9,490; and aged 75 upwards £9,640.  Note also that the higher age allowances are restricted where your income is over £22,900.) 
• Is the personal allowance on only one coding notice?  If it is duplicated, you are likely to underpay tax.
• If you are married or in a civil partnership and one of you was born before 6/4/1935, is married couple’s allowance (MCA) shown?
• If you are a taxpayer, is your MCA restricted to £3,483?
• If you have previously transferred any MCA to your spouse or civil partner, is this still in place?
• If you are entitled to Blind Person’s Allowance (BPA), is it still shown?  If you have transferred the BPA to your spouse or civil partner, is it still in place?
• Is your state pension on the notice?  Check that it is only on one of them.  Again, if it is duplicated you have a problem.
• Is your state pension figure correct?  This year it should be 1 week of the 2009/10 pension and 51 weeks of the 2010/11 figure.  Check it against your pension breakdown letter issued from the Department of Work and Pensions, but make sure you leave out any non-taxable elements like Attendance Allowance.
• Do other earnings or pension figures shown match with your untaxed income?  Do the other coding notices show the same corresponding figures?
• Are you or have you been on Incapacity Benefit, contribution-based Employment and Support Allowance or another benefit?  Check the amounts shown.
• If underpayments are shown, do you know why?  If not, ask - they often just appear for no reason.
• Are there any notes “adjustments to basic rate band” when you are not a 40% taxpayer?
• Do you suddenly have a K, 0T or D0 code?
• If your income has been estimated, is the amount correct?

You’ve checked the coding notice – now check it is being applied!

It is important to check that your employer/pension provider is applying the code that you have been issued, as we know that in some cases HMRC have not yet told them what code they should be using.  So it could be that even if you check the coding notice(s) you have received and you are happy they are right, your employer/pension provider might still be using something different! 

If you only get one letter a year from your pension provider, call them to check what code they are using, as you don’t want to get to the end of the tax year and find out you haven’t paid enough (particularly when you then find HMRC blame you for not noticing!).

If any of the above is ringing alarm bells or your income suddenly changes from 6th April (have a look at your bank statements if you don’t usually get payslips from your pension company), then you will need to contact HMRC to get it resolved.  Use the number quoted on your coding notice or call 0845 3000 627.

Trouble getting through to HMRC?

TOP’s experience – which will come as no surprise in view of the coding problems – is that it can be difficult to get through to HMRC’s helplines at the moment so be prepared to be patient. 

If eventually tenacity fails you, ‘plan B’ is to write to HMRC complaining that you have been unable to get through to sort out your coding problem.  Make sure you clearly head the letter ‘COMPLAINT’ which should mean it gets looked at sooner rather than later.  But we suggest you only use this as a last resort because, however frustrating it might seem at the time, your coding problem should ultimately be sorted out sooner if you wait in the queue to speak to someone.  (You can still complain about poor service after you have sorted out the problem if you feel so inclined, particularly if HMRC have not lived up to the ideals now set out in ‘Your Charter’ – link below.)

Further help for low-income pensioners

This article was co-authored by TaxHelp for Older People (TOP), registered charity no.1102276.  The helpline number for free tax advice for the over 60s on less than £17000 per year is lo-call 0845 601 3321 or geographic number 01308 488066.

Useful links

Help for pensioners in checking tax codes from the Low Incomes Tax Reform Group 

LITRG’s previous article ‘Pensioner Tax Code Problems’ 

HMRC guidance on incorrect coding notices

HMRC Complaints Factsheet

HMRC: ‘Your Charter’