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What are the tax implications of drawn down pensions and part-time work?
Draw down 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 on a small regular sum it is not clear what the tax implications might be. Any tax information would normally shown on the letter informing the client about HMRC’s tax rate.
As regards the part-time job, once again it really depends on any instruction from HMRC to the employer. Normally a 20 hour a week job at a minimum or slightly higher wage would not be taxed as it would fall below the current 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 a 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 can result in an unwelcome tax bill, usually attached to a summary of the calculation which can be difficult to understand 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 could be avoided by more efficiency within HMRC and policymakers recognising the issue.
*Des Desai is a tax specialist who exclusively serve self employed and buy to let landlords. Website: www.mrtaxsoftware.com Email: [email protected]
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