A pensioner raised concerns they would pay ‘above the normal rate’
HMRC has clarified how tax codes work(Image: Getty)
HMRC has clarified how tax codes work for pensioners. The department issued the update after concerns were raised about people being placed on a higher tax rate.
A customer reached out to HMRC via social media to enquire: “Can someone please enlighten me regarding emergency tax charges, over and above the normal income tax rate when withdrawing from a private pension?” HMRC initially responded by asking whether the person intended to withdraw their entire pension pot as cash or take regular payments. The customer confirmed they had been drawing down regular payments for four years.
The tax authority then outlined the general tax rules that apply to pensions. The agency explained: “Up to 25 per cent of pension withdrawals are tax free. The remaining 75 per cent is taxed as income at either: 20 per cent (basic rate), 40 per cent (higher rate) or 45 per cent (additional rate), depending on what rate you pay tax at.”
A ‘cautious’ tax approach
However, the taxpayer said they were already aware of this information. They pressed further on what “emergency tax” actually means. HMRC replied: “Emergency tax is the tax we apply when we don’t yet have enough information about your income or tax situation.
“We use a temporary, cautious code to avoid under collecting tax.” HMRC also provided a link directing the customer to further guidance on emergency tax codes available on the Government website.
Your tax code determines the amount of tax deducted from your earnings, whether from pensions or employment. You might be assigned an emergency tax code if HMRC does not have all current details for you.
You could pay the wrong amount of tax. Information on the gov.uk website states: “Usually, your tax is worked out based on your total income so far in that tax year. If you’re on an emergency tax code your tax is worked out based on what you’re paid in that week or month only.
“You get taxed as if you’re paid that amount every week or month of the year. This could mean you pay the wrong amount of tax.”
You can find out your current tax code via your personal tax account on the Government website. Should you believe your tax code is wrong, you can amend your information using the Check your Income Tax online service.
An alternative is to call up HMRC for help. You can contact the department regarding income tax enquiries by ringing 0300 200 3300. Lines are open Monday to Friday from 8am to 6pm.
