State pension first year - HMRC

"advised" amounts seem slightly too high?

Didn't find your answer?

State Pensions taxed on "earned" basis - ignores the amount you are paid in the year.

I accept this as a principle, albeit an unhelpful one.  However HMRC are now changing amounts based on their PAYE coding ( which seem closer to correct and usually accepted) to their " advised"  amount.   I don't think their amounts are correct if we use the daily amount x the days from Qualifying date to year end.

So far I haven't been challenging HMRC as amounts are small but is anyone else seeing the same? 

Replies (38)

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RLI
By lionofludesch
07th Jan 2024 15:14

There was a lengthy thread on this a few years ago.

The background is that the state pension used to change in November each year, so the assessable amount was 34 or 35 weeks at the old rate and 17 or 18 weeks at the new. Always whole weeks.

Anyway, some Tory Chancellor back in the 1980s said wouldn't it be a smashing idea if the rate changed in April and we'd just need to have 52, maybe 53, weeks pension at a single rate? So much simpler. So the change was made by paying new rates in July one year and in April the next. All good so far.

Since then, HMRC seem to have unilaterally changed all this to some impenetrable method which involves one an a bit weeks being at a different rate to all the others, thereby negating the whole point of changing in the first place. It was Richard Thomas, I believe, who came up with the references in the legislation, though following the rules therein, I never came to the same figure as HMRC.

Personally, I just include 52 (or 53) weeks at a single rate. Though I'm happy to accept HMRC's figure if lower. I've never seen one be amended by HMRC.

Tax doesn't have to be taxing but HMRC prefer it that way.

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Replying to lionofludesch:
Tornado
By Tornado
07th Jan 2024 15:46

It would be a lot more useful if HMRC issued a certificate to State Pensioners at the end of every year to show how much Pension they have been paid during that year.

A significant number of my clients still think they are paid 12 monthly payments a year whereas we all know it is (usually) 13 payments at 4 weeks. After all these years, this sort of thing makes a mockery of the aims of MTD.

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Replying to Tornado:
RLI
By lionofludesch
07th Jan 2024 15:53

Tornado wrote:

It would be a lot more useful if HMRC issued a certificate to State Pensioners at the end of every year to show how much Pension they have been paid during that year.

Absolutely. The whole thing is unnecessarily complicated for the sake of a pittance in tax.

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Replying to lionofludesch:
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By Tax Dragon
07th Jan 2024 17:13

What I don't understand is why sometimes the information is not in the portal. (At least, the agent one.)

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Replying to Tax Dragon:
RLI
By lionofludesch
07th Jan 2024 17:26

No, you're right.

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Replying to Tax Dragon:
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By Homeworker
12th Jan 2024 11:49

I think that happens when they are either no longer in SA or if they have no PAYE income, so it hasn't been coded.

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Replying to Homeworker:
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By Tax Dragon
12th Jan 2024 22:24

Maybe, thanks, but I'm not sure. Generally people we look it up for are in self assessment - that's why we're looking! - and there's often a difference of a few quid between the amount coded out (which is a prediction) and the amount in 'info for tax return' (which is a measurement).

Does DWP provide the measured figure to HMRC for only some pensioners, or for all and it's HMRC not passing the info on?

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Replying to Tax Dragon:
RLI
By lionofludesch
12th Jan 2024 23:21

I have to say that for 2023/24, my coded out pension is exactly 52 times my weekly state pension, rounded down to the nearest pound.

It has not always been so......

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Replying to Tax Dragon:
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By FactChecker
13th Jan 2024 00:27

Only two things are certain:
1. Figures originate from within DWP; and
2. HMRC populate (some of) online SATRs and Tax Code notices with a figure.

I believe (but cannot prove) that DWP only provide what you might call 'input figures' from which HMRC perform a calculation of the result for a tax year ... which is why DWP will claim to be unable to confirm/deny that resultant value.
It is also why HMRC can be badly wrong when something unusual happens (like a delayed payout or, at a more minor level, when SP starts or ceases within the tax year).

But the answer to your specific question regarding the incomplete provision by HMRC remains a mystery ... or in the response I got from them, "FIIK".

They will claim that it's more a matter of not all results appearing in one go and so patience will be rewarded, but in my experience it's entirely random ... same person has figures provided/omitted in different years ; two partners in same business do/don't get the figure ; my figure can be there in May some years but then not appear until after October in other years ; and so on.
Almost certainly there is some sort of problem within their processes that first 'capture' the DWP data and then either move it on for 'processing' or put it on hold for consideration by a human ... probably a combination of bottlenecks in both those steps, with those in 'suspense' becoming prone to be forgotten?

And then there's lion point (which I don't intend to re-hash yet again) regarding the basis of the calculation for a tax year. Suffice to say that he's personally lucky if his simplified calc is near consistent with HMRC's result - as the number of variables must just happen to nearly cancel each other out for him.

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Replying to FactChecker:
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By Tax Dragon
13th Jan 2024 05:07

You mean if Alan Davies still had his 'nobody knows' paddle he'd be waving it.*

* He still does, on Dave.

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Replying to FactChecker:
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By OldLag
15th Jan 2024 09:46

I can tell you where HMRC (or rather the Inland Revenue!) got NIRP figures in the early 1990's if that helps. When I started as a Revenue Assistant in 1991, I did codings. These were manual, and on the new fangled green COP (computerised operation of PAYE) computer screens!

Lists would come through from the DHSS or whatever it was called then, very much in the format of the annual pension payment letters received these days in February each year. These gave the weekly figure from the first April payment, and this was simply multiplied by 52 weeks and entered in the coding.

If I ever get these letters from my clients, I multiply it by 52 and it always matches the HMRC figure - coded or on the SA "info to help complete your tax return" screen.

I'd therefore conclude that's still exactly what HMRC base their information on. Unless someone knows otherwise.....

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Replying to Tornado:
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By FactChecker
07th Jan 2024 19:03

I don't disagree (who could with such an eminently sensible idea) ... but issuing a 'P60 for a State Pension' would be the responsibility of DWP, not HMRC, and they've not so much showed a lack of enthusiasm for doing so as refused outright even to contemplate doing so.

Unofficially I believe they were 'advised' that to do this could 'open the floodgates' to them needing to comply with *all* other PAYE regs (including those for Pay Statements with every payment and maybe even RTI) ... at which thought a senior bod nearly fainted!

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By Tax Dragon
07th Jan 2024 20:07

Do you know more about this? I thought I'd have a quick look at ITEPA, find that state pension was explicitly excluded from PAYE and make some comment to the effect that DWP telling HMRC (and HMRC telling the taxpayer and ideally the agent portal) was of course sufficient, but it would be nice if that happened more quickly... BUT.... my quick look at ITEPA resulted in my finding that state pension is explicitly INcluded as PAYE income in s683.

Does that mean that, for pensioners with personal allowances tapered to Nil (or state pensions otherwise exceeding their PAs), a tax code should be issued to DWP and PAYE applied accordingly?

I'm confused.

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Replying to Tax Dragon:
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By FactChecker
07th Jan 2024 21:16

YOU're confused!

Not only is SP explicitly included as PAYE income in s683 ... so is all "taxable social security income for the year determined in accordance with section 658(4) or (5) (taxable United Kingdom social security benefits)".

No wonder the DWP people were quaking at the prospect of being drawn into a discussion about their responsibilities ... can you imagine having to generate YE documents (let alone for each payment) across Jobseeker’s Allowance, Incapacity Benefit, Carer’s Allowance as well as SP and others?

I presume they feel they are 'safe' at the moment in that s683 is only defining the types of "PAYE income" - not the consequences relating to the liabilities of any body acting like an employer in paying out this income - but appeared to be afraid of having any such connection inferred by others.
Whether that was a justified fear, in terms of other sections of ITEPA, is more your area of research than mine (although I'm now agog to know more).

Any answers that you *do* find regarding those responsibilities (for example, as I mentioned, documentation to recipients and RTI reporting to HMRC) just *might* lead to an answer to your point about whether tax codes should be issued to (and applied by) DWP.

They were certainly adamant that these do not apply to them (but on what basis they didn't share at the time) ... which is but one reason why I keep bleating on about the inconsistency of an HMRC policy to keep reducing the need for SA returns, despite an increasing number of people being caught by a PAYE liability that hasn't been deducted at source (and in many cases can't currently be via a revised tax code).

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Replying to Tax Dragon:
RLI
By lionofludesch
07th Jan 2024 21:41

They've never accepted the responsibilities that normal employers have.

But you could get a P60U or a P45U if you were on the dole back in the '80s when it first became taxable.

You wouldn't get any tax repayment you were due to, though. You'd have to get that from your new employer or HMRC afyer the year end.

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Replying to Tax Dragon:
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By richard thomas
08th Jan 2024 09:45

Unconfuse yourself by reading regs 4 & 21 of the PAYE Regs.

DWP do sort of operate PAYE in relation to certain SS benefits, in fact everything bar actually deducting anything.

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Replying to richard thomas:
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By FactChecker
08th Jan 2024 14:10

".. everything bar actually deducting anything" ... and ALSO escaping the need to provide recipients with anything useful (like a pseudo-P60) - which is where we came in.

But this shouldn't really be seen as a PAYE issue (fun though some of the discussion has been).
A simple sense of responsibility to inform people what they've received in a tax year should mean that they don't leave taxpayers to stand out like the proverbial sore thumb in a field far wider than mere Employer-driven PAYE (see dividend vouchers/statements and many others).

The reason it upsets (or at least worries) me is precisely because the introduction of new 'improved' systems/processes by HMRC is taking us ever closer to a point where, as well as acting as guardian of the data and prosecutor of inconsistencies between what they hold and what is reported by the taxpayer, they don't have to proactively provide the data to the taxpayer in advance (let alone explain the basis for the figures or enter into discussion over any apparent errors).

That 'gap' in the process should (logically and morally) be filled by DWP. Without it, HMRC are left in the same invidious position that the Post Office demonstrated will from time to time 'fail the taxpayer' (who is left without recourse elsewhere to any simple resolution).

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Replying to FactChecker:
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By richard thomas
08th Jan 2024 17:27

What about, for example, regs 157, 170 and 184I though?

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Replying to richard thomas:
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By FactChecker
08th Jan 2024 18:22

With thanks (and apologies for not having previously taken the time to search through the aspects of ITEPA with which I'd not had to deal in my 'previous life') - but whilst regs 157 & 170 seem to cover everything that I was 'demanding', they are only with regard to Jobseeker’s Allowance?

I see there is now a further chapter for ESA (replacing the much briefer one for Incapacity Benefit as was), where reg 184I covers similar (YE) ground with regard to the liabilities placed on DWP.

But I've failed to find comparable regs for Carer’s Allowance and the remainder of the other (more minor) taxable benefits ... so are these not covered by any ITEPA regs?

And, going full circle on this thread, I still don't understand why SP isn't similarly covered (beyond defining it as one of the three types of PAYE income)?

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Replying to richard thomas:
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By Tax Dragon
12th Jan 2024 22:14

richard thomas wrote:

Unconfuse yourself...

Thanks Richard. Makes sense now: categorised as PAYE income so it comes into Reg 14(1) at (b) not (f); not itself subject to PAYE. (Any other consequences of being so categorised?)

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Replying to Tax Dragon:
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By richard thomas
13th Jan 2024 17:42

You could argue that PAYE is mandatory for all PAYE income, despite reg 4. Section 684 ITEPA says:

"(1) The Commissioners must make regulations (“PAYE regulations”) with respect to the assessment, charge, collection and recovery of income tax in respect of all PAYE income.

(2) The provision that may be made in PAYE regulations includes any such provision as is set out in the following list.

LIST OF PROVISIONS

1. Provision—

(a) for requiring persons making payments of, or on account of, PAYE income to make, at the relevant time, deductions or repayments of income tax calculated by reference to tax tables prepared by the Commissioners, ..."

Section 685 says:

"(1) The Commissioners must construct tax tables with a view to securing that so far as possible—

(a) the total income tax payable in respect of PAYE income for any tax year deducted from PAYE income paid during that year, ..."

Both subsections (1) are mandatory and do not envisage that not all PAYE income will be within the scope of deduction using the tax tables.

To construe the sections in this way would not make reg 14(1)(b) otiose, as that sub-para also applies to cases such as mine where my CSP has a code using my PA but which taxes me at basic and higher rate and it is necessary for HMRC to take that into account when determining the code for my judicial pension, which is therefore coded D0. Even if it did, it would not matter.

The counter-argument would be to invoke section 684(7) which reverses the usual order of priority.

I can't immediately see any other consequences of income not being within the operation of PAYE nevertheless being PAYE income.

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Replying to FactChecker:
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By kim.shaw-and-co.com
18th Mar 2024 02:33

FactChecker wrote:

Unofficially I believe they were 'advised' that to do this could 'open the floodgates' to them needing to comply with *all* other PAYE regs (including those for Pay Statements with every payment and maybe even RTI) ... at which thought a senior bod nearly fainted!

Prime fodder for an episode of Yes Minister !

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David Ross
By davidross
10th Jan 2024 10:24

Just a note about first year State Pension

There is a rule somewhere that says you get taxed on what you are due to receive, not what you actually receive.

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Replying to davidross:
RLI
By lionofludesch
10th Jan 2024 11:21

davidross wrote:

Just a note about first year State Pension

There is a rule somewhere that says you get taxed on what you are due to receive, not what you actually receive.

Applies to all years, not just the first.

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By Retrocanary
15th Jan 2024 10:10

Anyone hoping for HMRC and DWP to be co-operating for the benefit of the taxpayer here, think again.

Last year I had someone come in with Simple Assessments showing a state pension of around £14,000. When I called HMRC and implored them to see sense that this couldn't possibly be right, they told me the client needed to phone DWP/Pension Service and ask them to provide new figures to HMRC and that there was nothing they could do.

With the post office scandal hitting the headlines recently, I can't help but wonder which company supplies HMRC's IT, and also whether HMRC might need to stop treating the system as God, whose word cannot be questioned.

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Replying to Retrocanary:
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By richard thomas
15th Jan 2024 10:39

So did you/client appeal?

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By Nebs
17th Mar 2024 23:10

There is no need for a P60. When the DWP issue the letter in February (say 2024), telling you what pension increase you are getting in April 2024, they then have all the information necessary to tell you: "If your circumstances do not change then your taxable state pension for the tax year to 5th April 2025 will be £XXXX"

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RLI
By lionofludesch
17th Mar 2024 23:34

.

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Replying to Nebs:
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By DKB-Sheffield
17th Mar 2024 23:34

Aside from the weeks at the old rate, of course? The letter in Feb 2024 relates to the new rate only. The letter from Feb 2023 being required for the old rate... and a knowledge of exactly how many weeks are at new/ old rates in the tax year.

Maybe relatively easy for us to reconcile (say with reference to TCN etc.), but many receiving SP and filing tax returns may not have an accountant, or have any basic level of understanding of the mechnics.

Anyhow, it's been discussed many times - in depth - on here. The reasons for not requiring a P60, don't necessarily mean some level of notification by DWP would be of little benefit to many. It will be interesting to see what will happen if the PA is fixed for much longer, and SP rises above that level - we're getting mightily close in some cases!

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Replying to DKB-Sheffield:
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By FactChecker
18th Mar 2024 00:01

"Aside from the weeks at the old rate, of course?" ... but DWP have that data too.

I've explained on other threads why they don't produce a 'P60' at Y/E (in essence - not required by legislation / seen as unnecessary cost / base systems not set up) ... however Nebs' suggestion is feasible (in theory).

The problem would be the one common to all forecasts - it would have to be accompanied by so many caveats as to fall in between incomprehensible and thus meaningless to the very people it was meant to help. And some of these might be regarded as insensitive or callous - such as 'if you are still living at end of tax year', or 'have not been detained at his majesty's pleasure during the tax year'.

There are of course loads of other 'anomalies' (as in not plain vanilla SP), such as the lack of an increase in weekly rate if pensioner is living in certain countries.
So if forecasts are (seen as) too problematical then we're back to the after-the-event 'P60' ... which makes sense to me but requires the will (and budget) to make it happen - almost the inverse of MTD ITSA one might say!

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Replying to Nebs:
RLI
By lionofludesch
17th Mar 2024 23:38

Nebs wrote:

There is no need for a P60. When the DWP issue the letter in February (say 2024), telling you what pension increase you are getting in April 2024, they then have all the information necessary to tell you: "If your circumstances do not change then your taxable state pension for the tax year to 5th April 2025 will be £XXXX"

Employers could do that too.

I think I've sussed this one week at old rate business. It's because most folk get paid four weekly in arrears. If you get paid weekly, it's in advance.

That's my theory anyway. Sounds plausible.

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Replying to lionofludesch:
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By FactChecker
18th Mar 2024 00:21

Too late (at night) to be scurrying back to my files ... but my spreadsheet always produces the same figure that HMRC eventually use to pre-populate my tax return.

And, from memory, that's as 'simple' as:
- Note date (as announced by DWP) from which rate changes in that tax year;
- Note 'as at' date of first payment received AFTER 6th April ... and count how many whole days (covered by the 28 days for which payment is in arrears) are:
a) days upto/including 5th April;
b) days from 6th April (inclusive) upto the final date before rate increase;
c) days from date when rate increase first applies to the end of this 4-week period.

It's a lot harder to describe than to process - but it tells me the two things I want to know ... how much of that first payment belongs to the previous tax year + the likely total for the new tax year.
[Note: last item will be inaccurate until my 'allocation check' is repeated in April of the next year - and part of its 1st payment is added back to its previous year].

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Replying to FactChecker:
RLI
By lionofludesch
18th Mar 2024 06:29

FactChecker wrote:

Too late (at night) to be scurrying back to my files ... but my spreadsheet always produces the same figure that HMRC eventually use to pre-populate my tax return.

And, from memory, that's as 'simple' as:
- Note date (as announced by DWP) from which rate changes in that tax year;
- Note 'as at' date of first payment received AFTER 6th April ... and count how many whole days (covered by the 28 days for which payment is in arrears) are:
a) days upto/including 5th April;
b) days from 6th April (inclusive) upto the final date before rate increase;
c) days from date when rate increase first applies to the end of this 4-week period.

It's a lot harder to describe than to process - but it tells me the two things I want to know ... how much of that first payment belongs to the previous tax year + the likely total for the new tax year.
[Note: last item will be inaccurate until my 'allocation check' is repeated in April of the next year - and part of its 1st payment is added back to its previous year].

So why is mine one week at the old rate and 51 at the new?

5th April is a Friday this year, the rate changes on Monday 15th.

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Replying to lionofludesch:
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By Not Anonymous
18th Mar 2024 08:28

lionofludesch wrote:

FactChecker wrote:

Too late (at night) to be scurrying back to my files ... but my spreadsheet always produces the same figure that HMRC eventually use to pre-populate my tax return.

And, from memory, that's as 'simple' as:
- Note date (as announced by DWP) from which rate changes in that tax year;
- Note 'as at' date of first payment received AFTER 6th April ... and count how many whole days (covered by the 28 days for which payment is in arrears) are:
a) days upto/including 5th April;
b) days from 6th April (inclusive) upto the final date before rate increase;
c) days from date when rate increase first applies to the end of this 4-week period.

It's a lot harder to describe than to process - but it tells me the two things I want to know ... how much of that first payment belongs to the previous tax year + the likely total for the new tax year.
[Note: last item will be inaccurate until my 'allocation check' is repeated in April of the next year - and part of its 1st payment is added back to its previous year].

So why is mine one week at the old rate and 51 at the new?

5th April is a Friday this year, the rate changes on Monday 15th.

HMRC's view of things is here. Covering both "basic" and "new" State pension scenarios.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye76030

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By FactChecker
18th Mar 2024 13:38

The most interesting sentences in there (given this is an HMRC internal manual):

"You should be aware that there may be some instances where the amounts notified by the DWP are not representative of the true annual figure.
Where a pensioner notifies you of a different figure, code the amounts advised by the pensioner."

In which case, why (from memory and as reported by others) does their on-line tool 'ignore' any value you enter for SP if they've already pre-populated it?

But the rest of the page is close to gobbledygook - and certainly not explicit regarding any calculation methodology.

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Replying to lionofludesch:
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By FactChecker
18th Mar 2024 13:55

"So why is mine one week at the old rate and 51 at the new?
5th April is a Friday this year, the rate changes on Monday 15th."

Honest answer?
This is HMRC, so FIIK ('why' not usually being one of their strong points).

But do you have 'only whole weeks' for every year since you started receiving SP?
I've checked back on my records and, from 2018-19 onwards, there have been just 2 occasions when the new tax year apportionment of 1st payment in year included exactly 1 week at old rate.

Presumably you and I have different 'payment dates'?
My first one in CY being 24th April 2023 - which means first in new tax year will be on 22nd, and so I'm expecting that will include:
12 days (old rate) in 2023-24
2 days (old rate) for 2024-25
14 days (new rate) for 2024-25

Of course other than being brain fodder as an exercise for a rapidly degenerating organ, the amount 'at stake' is so miniscule as to be irrelevant ... but old control freaks never fully let go!

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By FactChecker
18th Mar 2024 14:04

UPDATE:
My figures looked wrong when set against lion's statement that "the rate changes on Monday 15th" this year.

So I've gone back to the source and found that for 2034-24: "The new rates will apply in the tax year 2024-25 and come into effect on 8 April 2024" - which is then consistent with my suggested results (phew)!

But I can't immediately find the source for a wholly different date in 2024-25 ... hence the fundamental flaw in comparing my methodology with lion's expectation of the date from which the new rate applies.
EDIT: found the general rule: "Every year on the first Monday on or after 6 April" is when new rate takes effect ... so 8th not 15th April this year (double phew)!

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By kim.shaw-and-co.com
18th Mar 2024 01:52

lionofludesch wrote:

davidross wrote:

Just a note about first year State Pension

There is a rule somewhere that says you get taxed on what you are due to receive, not what you actually receive.

Applies to all years, not just the first.

All they really ought to do is change state pension to be taxable on a receipts rather than accruals basis (like most other types of income) and a taxpayer would only need to consult their bank statements to 'tot up' what had been credited to them.

I suppose it's all about handling the position of those who still draw their pension in cash at the post office counter ? We all now how reliable their systems are for accurately reporting transactions now don't we ?!!

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