What are the tax implications of draw down pension + part-time job?

Draw downs on pensions are usually taxed at source by HMRC. Pension providers have to seek clearance from HMRC on what tax rate to apply before the payment is issued, but this may differ when it comes to small regular sums. Any tax information would normally be shown on the letter informing the client.

As regards the part-time job, this will depend on any instruction from HMRC to the employer. Normally a part-time job at a minimum or slightly higher wage would not be taxed as it would fall below the tax threshold of £12,570 per annum or £1,047 per month, or £242 per week.

Generally, multiple sources of income result in some taxation at the basic rate at source. If you see a BR as the tax code on a payslip or pension statement that means that the entire amount has been taxed at 20 per cent. If this results in overtaxation in any given year HMRC will correct this usually reasonably quickly after the end of the tax year submissions by employers and pension companies.

However, a lot of pensioners are now finding that when HMRC finally join the dots between a tax payer’s employment and private and state pensions they have exceeded the tax-free allowance limit.

This results in an unwelcome tax bill usually attached to an incomprehensible summary of the calculation and in a lot of cases a demand to complete a tax return. Drawing low income pensioners into the tax regime was not the intention of Self Assessment. Many are suffering stress and expense which would be avoided by more efficiency within HMRC and policy makers recognising that this is an issue.

*Des Desai is Sales Director at tax specialists MrTax Software Ltd.

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