01308 488066
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Tax Information Centre

Welcome to the Tax Help 'Tax Information Centre'. We aim to provide basic information on the UK tax system and how to deal with HM Revenue & Customs (‘HMRC’). We also have a number of easy-to-follow guides on particular tax topics.

You can also find a wealth of information on the LITRG (Low Incomes Tax Reform Group) website.

For more detailed help on your specific tax situation, please contact us.

 

Tax basicsAllowancesDealing with HMRCPensionsSavingsTax refunds

What is tax?

Tax is a ‘financial charge’ or deduction from something you get or own. It is not a penalty or fine for doing something wrong. Normally governments collect taxes so that there is a pot of money to spend on things which benefit society as a whole, such as law enforcement roads and pathways and administration.

The UK Government also uses tax to fund various public services, including healthcare and welfare benefits.

The UK has many taxes; some are known as ‘direct’ taxes because they are usually obvious amounts such as income tax which you can see being taken from your pay or have to pay direct to HM Revenue & Customs (‘HMRC’). Other direct taxes include Corporation Tax, Capital Gains Tax and Inheritance Tax.

There are also ‘indirect’ taxes. The most well-known example of an indirect tax is Value Added Tax (‘VAT’). This is less obvious than a direct tax as it is included in the price of things that you buy.

National Insurance is not strictly a tax. It was originally a contributions-based system of insurance for support from the government in times of need such as ill-health, disability or retirement, paid by workers and employers. The link between individual contributions and benefits has gradually weakened, but the number of years for which you make National Insurance contributions still affects some welfare benefits, including your entitlement to the state pension.

Who collects tax?

Her Majesty's Revenue & Customs (‘HMRC’) is the UK tax authority. It is responsible for collecting and managing most UK taxes. It also interacts with other government organisations, for example, it collects most student loan repayments. These are not a tax, they are repayments towards money that students have borrowed in the past; but as they are calculated as a deduction from income, the tax system is a convenient way to collect them.

HMRC also pays some welfare benefits, like tax credits and child benefit.

Local councils are responsible for collecting council tax and rates.

Where can I find more information?

If you are over 60 or near retirement and on a low income. you can contact us on 01308 488066 or via our 'contact us' form on this website. A tax adviser will check your personal situation and guide you in the right direction, based on your specific circumstances.

If you are under 60 or self-employed, you can contact our sister charity TaxAid on 0345 120 3779.

You can also find out more information about what HMRC does and its responsibilities on the GOV.UK website. This includes  HMRC’s ‘Your Charter’ which sets out what HMRC expects from you, but also what you can expect from it.

Taxation at Retirement

During your working life the tax you have to pay is generally dealt with automatically by your employer. They receive instructions from HMRC (Her Majesty's Revenue and Customs) via a tax code and deduct a certain amount of tax, and National Insurance Contributions (NICs) from your pay before you receive it. The amount you receive is called ‘net pay’ and your dues to the State are satisfied without any action on your part. At the end of each tax year your employer gives you a certificate called a P60 showing how much tax and NICs they have deducted over the year.

If you are self-employed or receive any taxable income which has not had tax taken off already, such as rent, you probably have a little more contact with the tax authorities, letting them know about your income for the year by completing a Self Assessment tax return and then paying the tax due either directly or through the next year’s tax code.

Now, however, as you retire your financial and taxation circumstances may be about to change as extensively as your lifestyle. You, as a financial entity, will become a little more complicated. You may have several sources of income including multiple pensions, state pension/ benefits and employment probably all starting at different times in the year. Not forgetting that the taxable state pension is paid gross so your tax codes will need adjusting. You may even find yourself in Self Assessment for the first time in your life. Needless to say the tax system will find you more difficult to handle and you will not have the support of a payroll team; quite a change for the majority of you who have been employed. Even for some of the self-employed, managing tax in retirement may have an impact if you can no longer afford to pay an accountant to do your books and sort out your tax liability. Because you usually only retire once, you have no experience of this life event.

It is important to keep track of your financial and tax situation in the year of retirement as this is the time HMRC’s systems can struggle most. Never assume that HMRC is aware of any changes. You can inform HMRC

  • in writing (keeping a copy), of incomes starting or ceasing or changes of address
  • by phone,  note the officers name along with the date and time of call. If there is a query later on you will have proof that you informed them
  • via your personal tax account. You can inform HMRC of some changes via this route and the list is increasing as it develops. You can register for your account via www.gov.uk/personal tax account

How is the tax collected?

For amounts under £3,000 HMRC will send you a P800 tax calculation and normally collect the unpaid tax by reducing your PAYE tax code 'in year' and for the next tax year. For larger amounts or if is not possible to collect via a tax code they will send you a Simple Assessment called a PA302 showing what you owe and how to pay.

If you have received A PA302 payment in full is due by the 31st January after the end of the tax year. For example, tax due for a 2017/18 PA302 will be due by 31st January 2019. Interest and surcharges being added for late payments.

For years up to 2016/17, if you didn't respond, they would have issued a tax return for the year(s) concerned and you would then have fallen within the system of self- assessment (SA).   The full payment being due by 31st January after the end of the tax year, with penalties for late filing and interest and surcharges being added for late payments.

HMRC have removed the self assessment burden for people who are only in it because their state pension is higher their Personal allowance (£11,850 for 2018/19, £11,500 for 2017/18) and it is the only way the tax can be collected. HMRC will issue a simple assessment PA302 which you just need to check and pay by the usual deadlines. If you are concerned about what is happening contact either HMRC or Tax Help for Older People.

 

How do I find out if I’ve paid too much tax?

To work out accurately if you have paid too much tax, and whether or not you are due a repayment, you will have to work out your tax liability and compare this to how much you have paid.

What information do I need?

To start with, you will need to gather all the information about your income and tax position. This may include the following documents for the tax year:

  • P60 and / or P45 from an employer or pension provider
  • P11D from an employer
  • Details of taxable state benefits received
  • Bank statements or certificates of tax deducted
  • Building society statements or certificates of tax deducted
  • Dividend certificates
  • Details of rental income and expenses.

How do I work out my tax liability?

We set out an example tax calculation and explained the steps involved in calculating your tax liability on our page, ‘How do I work out my tax?’

To work out your tax liability, you first need to calculate your taxable income. You must include the gross amounts in your calculation, that is, the amounts before tax is taken off.

You may be able to deduct certain expenses or claim allowances against your gross taxable income.

You need to calculate your tax liability using the correct rates of tax, and you can then deduct the tax you have already paid, for example, under PAYE, to work out your tax overpayment or underpayment.

For further assistance you can contact us on 01308 488066 or via the secure email link on this website. A tax adviser will check your personal situation, help you resolve it or guide you in the right direction.

Where can I get help if things go wrong?

If you find you cannot resolve your issue by contacting HMRC through the normal channels it may be necessary to complain or appeal.

In this section we look at how to resolve disputes with HMRC and how to complain to HMRC about their treatment of you. We also provide you with guidance on what to do if you are unable to pay you tax bill, or if you have received a tax credits overpayment and have to repay it.

Which route you take depends on the issue you have. For example; if you have an underpayment of tax and are in dispute with HMRC over an HMRC Error (Extra Statutory Concession A19, [ESC A19]) then the complaint route is applicable. However if the investigation finds that it is actually an employer/pension provider error but HMRC are still pursuing you for the lost tax the appeal route is applicable.

  • How do I complain to HMRC? – you will find this guide helpful if you are not happy with the way HMRC is dealing with you.
  • Tax appeals - This guide will help you if you have a right of appeal against an HMRC decision on a direct tax issue.
  • What if I cannot pay my tax bill? – we explain what to do if you owe HMRC money, but you are not able to pay.

What are tax refund companies and why should I be careful of them?

Tax refund companies, or tax refund organisations, are businesses that specialise in offering services to help you submit a tax repayment claim. They charge for these services. Tax refund organisations often operate online.

Websites for tax refund organisations often use headlines to catch your attention, for example, suggesting that you might be due a large amount of money from HMRC and that they can make claiming a refund easy for you. Some organisations also indicate that they are ‘HMRC approved agents’.

Often, it is straightforward to make a claim for a tax repayment, and you can make the claim yourself at little or no cost.
Most tax refund organisations charge a minimum fee and this can reduce or eliminate the benefit of making a claim for a tax repayment, depending on the amount of tax involved.

Why should I be careful of tax refund organisations?

You should be careful of using a refund organisation to make a claim for a tax repayment for various reasons:

Cost:

The costs charged by refund organisations vary, but often the charge is the higher of:

  1. a minimum charge, and
  2. a percentage of the tax repayment obtained.

This means that the charge may outweigh your repayment if it is only small.

Potentially false claims about their status:

Tax refund organisations are not HMRC approved agents. They may be registered with HMRC for Money Laundering purposes and be registered with HMRC as an agent for the purposes of acting on your behalf. But this does not mean that the organisation has received any formal approval from HMRC.

Data protection – possible concerns:

You may be asked to sign a form 64-8 authority. This gives HMRC the authority to correspond with the tax refund organisation about your tax affairs. You may find that you have to keep using the services of the tax refund organisation year after year, if you do not take steps to remove the authority after you have used the organisation’s services.

Receiving your refund:

Tax refund organisations normally request authority to receive the repayment on your behalf. They will then deduct their fee and pass the balance to you, perhaps by direct transfer to your own bank account. This creates risks, for example that you might not receive your repayment at all, and that you are sharing your own bank details with the organisation, potentially exposing you to personal fraud.

Tax refund organisations may not be unscrupulous or do anything wrong. In addition, you might prefer to employ a qualified tax adviser and pay a fee to them for helping you claim a refund, particularly if you do not understand or have time to do the paperwork yourself, for example.

But as noted above, many refunds are straightforward to claim and we would recommend that you at least try to understand your taxes for yourself even if you do decide to get an agent’s help.

How is tax collected from me?

Tax can generally be paid in two ways – either taken from you before you get the rest of the money via Pay As You Earn (PAYE), or you pay it direct to HMRC via a Self Assessment Tax Return. Sometimes it is a combination of the two – you might have some tax taken from the money before you get it and then have to pay the difference (or claim a refund) depending on your own tax situation.

HMRC introduced a third method in April 2017 called Simple Assessment. This is used where the PAYE system cannot collect the correct tax over the year. Pensioners whose only income is the state pension but tax is due because it is larger than their personal allowance will pay their tax this way, as will those who owe over £3,000.  HMRC will issue a tax calculation (PA302) after the end of the tax year with details on how to pay. Failure to pay will be treated in the same way as the Self Assessment system. There are a few teething problems so, if you are concerned contact Tax Help for advice.

If the person paying your income to you deducts tax from your income before paying you the income due to you, it is often known as having tax ‘deducted at source’.

This means you only receive the ‘net’ amount of income after tax, rather than the ‘gross’ amount. When you are working out how much tax you are due to pay, you have to include the gross amount of your income, including any tax that has been deducted from the income before you received it.

In this section we look at different types of taxable income and the ways in which your tax is collected. We only deal with UK-source of income (Except for a very small part on foreign pensions).

How is tax collected from my wages and salary?

HMRC ask employers to deduct tax from your wages or salary under the Pay As You Earn (‘PAYE’) system.

Under the PAYE system HMRC use a system of codes to tell employers how much tax to deduct. The aim is to collect the correct amount of tax each time you are paid and to spread your tax allowances evenly throughout the tax year. You do still need to check your own taxes, however, as the PAYE deduction will not always be right.

HMRC send a notice of coding (form P2) to you, which shows the allowances that HMRC think you are due and how HMRC are reducing your allowances to collect tax on other types of income that you may have.

How is tax collected from my pensions?

Private and occupational pensions

HMRC ask pension payers to deduct tax from your pension income under the Pay As You Earn (‘PAYE’) system. Under the PAYE system HMRC use a system of codes to tell your pension payer how much tax to deduct. The aim is to collect the correct amount of tax each time you are paid your pension and to spread your tax allowances throughout the tax year. You do still need to check your own taxes, however, as the PAYE deduction may not always be right.

HMRC send a notice of coding (form P2) to you, which shows the allowances that HMRC think you are due and how HMRC are reducing your allowances to collect tax on other types of income that you may have.

Foreign pensions

You might have worked abroad and saved up in an overseas pension scheme or be receiving a foreign state pension. From 6th April 2017 in the UK, foreign pensions will be taxed on the full amount paid to you. In previous years only 90% of the sums paid to you was taxable.  You have to complete a self assessment tax return if you receive a foreign pension.

The state pension

The state pension is taxable income, but you receive it gross. This means no tax is deducted at source from the state pension.

If your total taxable income, including your state pension, is greater than your allowances and reliefs, you will have to pay tax on the income that exceeds your allowances.

HMRC may collect any tax due on your state pension through the PAYE system, if you have a source of taxable earned income, such as a private pension or employment income.

If it is not possible for HMRC to collect any tax due on your state pension through the PAYE system, you will normally be put into the Simple Assessment system and you will receive a tax calculation after the end of the tax year, showing what tax is due and how you can pay. If you are unsure contact HMRC on 0300 200 3300 you may still need to complete a self assessment tax return.

How is tax collected from my self-employment income?

If you are self-employed, you must complete a self assessment tax return each year. This is because it is not possible for HMRC to collect any tax on your self-employment income through deduction at source.

You only pay income tax on any taxable profits you make, that is, the excess of your self-employment income when compared with deductible business expenses.

How is tax collected from my bank and building society interest?

From 6 April 2016 banks and building societies will pay your interest gross (without tax being taken). Bank and building society interest is still classed as taxable income but the 0% savings rate and the personal savings allowance mean that most people don't have to worry about tax.

If your taxable income in total is less than your personal allowance or if your savings income is within your personal allowance £11,850, 2018/19 plus £5,000, 2018/19 you will not need to pay tax. If your income is above £16,850, 2018/19  you are still covered by the personal savings allowance of £1,000, 2018/19 (£500 on incomes between £46,350 and £150,000, for 2018/19). Any interest above these amounts is taxable and even though banks and building societies have started informing HMRC of your interest, it remains your responsibility to check that HMRC have the correct information and that the tax is paid.

People living in Scotland should use the English rates and bands when calculating if tax is due on their interest.

Before April 2016 your bank or building society took off income tax at 20% before they paid you your interest.

If you have an Individual Savings Account (‘ISA’) with a bank or building society, you will receive your interest tax free and you need not include the amount in your income when working out your tax. Interest from ISAs is not taxable income.

Gift Aid alert – People who use their savings income as part of their calculation to decide how much they can gift aid may be paying less tax and may need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

How is tax collected from my UK dividends?

Dividends are amounts paid by companies to shareholders of their shares and are a way of passing the profit of a company to its shareholders. Normally dividends are taxable income.

If you have an Individual Savings Account (‘ISA’) that pays dividends, you will not need to include the ISA dividends in your income when working out your tax. Dividends from ISAs are not taxable income.

From 6th April 2018 the dividend allowance is reduced to £2,000 (previously £5,000). Any dividend payments  above £2,000 are taxable at either 0%, 7.5%, 32.5% or 38.1% depending on your total taxable income. For example, a person receiving £3,000 in dividends won't pay tax if their total taxable income is under their personal allowance. However, they will pay tax on £1,000 at 7.5% if their total taxable income is between £11,851 and £46,350 at 32.5% on an income between £46,351 and £150,000 and 38.1% on income of £150,001 and over. It remains your responsibility to check that HMRC have the correct information and that the tax is paid.

People living in Scotland should use the English rates and bands when calculating if tax is due on their dividends.

Gift Aid alert – People who at present, use the now abolished dividend tax credit as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

How is tax collected from my purchased life annuity?

A purchased life annuity is an annuity purchased with any capital which is not compulsorily directed to the purchase of an annuity. So, a purchased life annuity is an annuity you buy with money you have saved up outside of pension schemes.

If you buy a life annuity the amount you receive is treated as savings income. As a result, the annuity payer will take off tax at the rate of 20% before it is paid to you.

Part of the annuity is treated like a return of your capital. Only the part that relates to income is taxed at 20% as savings income.
The final amount of tax due on your income from a purchased life annuity will depend on your situation. You may be able to claim a repayment of some or all of the tax deducted at source, you may have paid the correct amount of tax, or you may have to pay more tax and complete a self assessment tax return.

How is tax collected from my rental property income?

If you receive rental income from letting out a property, you must tell HMRC. The deadline for notifying HMRC about liability to tax on a new source of rental income is 5 October after the end of the tax year in which you first receive rental income. For example, if you start to receive rental income during the tax year 2017/18 you must notify HMRC by 5 October 2018.

If you have a source of income from which tax can be deducted under the PAYE system, for example, a salary or a pension, you may be able to pay any tax you owe on your rental property income through PAYE. Your tax code will be adjusted to reflect the amount of rental profit you make. You may not be able to do this if your taxable income that is not taxed at source, including your rental profits, comes to more than £2,500.

HMRC will ask you to complete a self assessment tax return each year but, you can still pay the tax due via the PAYE system if that is best route for you.

You only pay income tax on any taxable profits you make, that is, the excess of your rental property income when compared with deductible rental expenses.

What is PAYE and how does it work?

Employees and pensioners have tax deducted under Pay As You Earn by means of what are called ‘PAYE codes’. You should check your code number and what tax is being taken off your income and query it with HMRC if you do not understand or think it might be wrong. We have some simple instructions for you to check your coding notice from HMRC for employees here and pensioners here.

PAYE stands for Pay As You Earn. It is the system for collecting tax from your earnings or pensions during the tax year. The tax year begins on 6 April in the year and ends on 5 April in the following year.

PAYE is a three-party process, involving HM Revenue and Customs (HMRC), your employer or pension provider and you. Each has a role in its operation.

In most cases the tax due from you can be taken off your pay or pension under the Pay As You Earn (PAYE) system. How often tax is taken off depends on how often you are paid – usually weekly or monthly for employees and most pensioners, but some pensions might only be paid quarterly or annually.

How PAYE works – the basics

HMRC will:

  •  calculate a tax code for you
  •  send you a PAYE coding notice (a form ‘P2’), if they are required to do so, showing you how they have worked out your tax codes. For cases where HMRC are not obliged to issue a coding notice you can still ask them for one
  • tell your employer or pension provider what your tax code is (but not how it has been worked out).

Your employer or pension provider then uses that tax code to work out how much tax to take off your weekly or monthly pay or pension. They regularly pay over that tax (and National Insurance contributions, if appropriate) to HMRC. You can view your tax code and how it has been calculated on the HMRC website through your Personal Tax Account.

Employers and Pension providers have procedures for running PAYE that allow them to use a tax code when paying you. It is important to check that your employer/pension provider has informed HMRC of your income. When new incomes start you should expect to see an updated coding notice from HMRC. If this doesn’t happen we suggest you contact HMRC and ask for one.

It is important to check that the tax codes HMRC have issued are being operated by your employer or pension provider. It can become more confusing in retirement as pensioners often have multiple sources of income including the taxable state pension that is paid gross. It is worth checking that the tax codes issued to you actually take the correct amount of tax. You can contact HMRC, Tax Help for Older People or if you have a 'personal tax account' you can view your tax codes there. To access your 'personal tax account' go to www.gov.uk/personal- tax-account and follow the prompts. Using Government Gateway is the easiest way to access your account but if you want someone else to manage your affairs via 'Trusted Helper' you need to follow the 'Verify' route.

Payslips

If you are employed you will be given a payslip each time you are paid. It may show the tax code your employer used to work out the tax to deduct from your gross pay.

If you are getting a pension, you generally do not get a payslip with each pension payment. However, you should get some form of notification if there is any change to the pension payment if, for instance, your tax code changes.

If you are unsure what code is being operated by your employer/pension provider call and ask.

The tax year end

So long as you are employed or receiving a pension at 5 April, the end of the tax year and pay tax, your employer or pension provider will give you an ‘end of year certificate’ (form P60 or its equivalent) by 31 May. This will show your pay or pension and the tax deducted and usually the final tax code operated. Your employer or pension provider will give the same information to HMRC.

What are the current tax rates and allowances?

Income tax allowances

Allowances 2015/16 2016/17 2017/18 2018/19 2019/20
Personal Allowances 
Those born after 5 April 1948 10,600 11,000 11,500 11,850 12,500
Those born between 6 April 1938 and 5 April 1948 10,600 11,000 11,500 11,850 12,500
Those born before 6 April 1938 (i) 10,660 11,000 11,500 11,850 12,500
Income limit for personal allowance for those born before 6 April 1938 (ii) 27,700 N/A N/A N/A N/A
Income limit for personal allowance (iii) 100,000 100,000 100,000 100,000 100,000
Married Couple's Allowance: (iv)
Maximum amount 8,355 8,355 8,445 8,695 8,915
Minimum amount 3,220 3,220 3,260 3,360 3,450
Income limit for Married Couple's Allowance for those born before 6 April 1935 27,700 27,700 28,000 28,900 29,600
Blind Person's Allowance 2,290 2,290 2,320 2,390 2,450
Marriage Allowance (v) 1,060 1,100 1,150 1,190 1,250
Trading Allowance 1,000 1,000 1,000
Property Allowance 1,000 1,000 1,000

(i) In 2015/16 only people born before 6 April 1938 are entitled to the age-related personal allowance. Individuals born on or after 6 April 1938 are entitled to the basic personal allowance.
(ii) The age-related personal allowance reduces where the individual's income in the tax year is above the income limit by £1 for every £2 above the limit until the level of the basic personal allowance is reached.
(iii) The personal allowance reduces where the individual’s income in the tax year is above the income limit by £1 for every £2 above the limit, until the level of the basic personal allowance is reached.
(iv) Married Couple’s Allowance may apply if one of the couple was born before 6 April 1935, relief given at 10%
(v) The allowance is the transferable part of the personal allowance, which applies to transfers between spouses or civil partners who were both born after 6 April 1935. It can be transferred where neither the transferer nor transferee is liable to income tax above the basic rate.

Tax Bands for England, Scotland and Wales

Band Band name Tax Rate
 Scotland     Wales Rest of UK
£12,500* - £14,549 Starter Rate 19%
£12,500 - £50,000 Basic Rate 20% 20%
£14,549* - £24,944 Scottish Basic Rate 20%
£24,944* - £43,430 Intermediate Rate 21%
£43,430 - £150,000 Higher Rate 41%
£50,000 - £150,000 Higher Rate 40% 40%
Above £150,000 Top Rate 46%
Above £150,000 Additional Rate 45% 45%

* This assumes you are entitled to the UK personal allowance. The starter, basic and intermediate rate bands together for Scottish income tax are £30,930 (£12,500 + £30,930 = £43,430)

Savings Allowances

Allowances 2015/16 2016/17 2017/18 2018/19 2019/20
Dividend Allowance 5,000 5,000 2,000 2,000
Personal Savings Allowance
   Basic rate taxpayer 1,000 1,000 1,000 1,000
   Higher rate taxpayer 500 500 500 500
   Additional rate taxpayer nil nil nil nil

Income Tax Rates (Personal and Savings)

2015/16 2016/17 2017/18 2018/19 2019/20
Basic rate of 20% up to income of 31,785 32,000 33,500 34,500 37,500
Higher rate of 40% on income of 31,786-150,000 32,001-150,000 33,501-150,000 34,501-150,000 37,501-150,000
Additional rate of 45% on income of 150,000+ 150,000+ 150,000+ 150,000+ 150,000+
Start up rate of 0% on savings up to (within limits) 5,000 5,000 5,000 5,000 5,000
Dividends basic rate taxpayer 10% 7.5% 7.5% 7.5% 7.5%
Higher rate taxpayer 32.5% 32.5% 32.5% 32.5% 32.5%
Additional rate taxpayer 37.5% 38.1% 38.1% 38.1% 38.1%

Capital gains tax

2015/16 2016/17 2017/18 2018/19 2019/20
Standard rate * 18% 10% 10% * 10% * 10% *
Rate for higher and additional rate taxpayers * 28% 20% 20% * 20% * 20% *
Annual exemption 11,100 11,100 11,300 11,700 12,000
Entrepreneurs' Relief rate 10% 10% 10% 10% 10%
Entrepreneurs' Relief lifetime limit 10M 10M 10M 10M 10M
Inventors' Relief rate 10% 10% 10% 10% 10%
Inventors' Relief lifetime limit 10M 10M 10M 10M 10M

* 8% surcharge for gains on residential property and carried gains. This makes the rates 18% and 28% respectively.

Inheritance tax

Nil Rate Band (NRB) 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
Chargeable lifetime transfers (after exemptions) 325,000 325,000 325,000 325,000 325,000 325,000
IHT nil rate
Lifetime rate 20% 20% 20% 20% 20% 20%
Death rate 40% 40% 40% 40% 40% 40%
Residential nil rate band (RNRB) N/A N/A 100,000 125,000 150,000 175,000

 

What tax rates apply to me?

Under the UK tax system, generally your earnings or non-savings income is treated as being taxed first, then your savings income and then your dividends.

You can find the current and recent years’ tax rates and bands’ in the next section 'Rates and bands in table format'

What tax rates apply to my earnings or non-savings income?

Earnings or non-savings income includes wages, pensions, taxable state benefits, profits from self-employment and rental income. This is not a complete list. Separately, we provide more information on what income is taxable.

You have to pay income tax on your taxable earned income that exceeds your tax allowances. You are also allowed to deduct any allowable expenses that you have incurred.

You pay income tax at the basic rate of 20% on your taxable earned income that falls within the basic rate band. The basic rate band for 2018/19 is £34,500 (£31,580 in Scotland).

If you have taxable earned income that exceeds the basic rate limit, you will have to pay more tax. This is firstly charged at the higher rate of 40% on the income above the basic rate limit. This means that in 2018/19 you will pay tax at the rate of 40% on taxable earned income above the limit of £34,500 (£31,580 in Scotland).

If your taxable earned income exceeds the higher rate band limit, you will have to pay tax at the additional rate of 45% on the income above the limit. The higher rate band limit is £150,000 for 2018/19.

What tax rates apply to my savings income?

As your taxable savings income is taxed after your earned income, the tax rates that apply to your savings income depend on how much earned or other non-savings income, such as rents, you have.

If your taxable savings income falls within the basic rate band, you will normally pay income tax at the rate of 20%. The basic rate band for 2018/19 is £34,500. There is also a '0% starting rate' of £5,000  for savings income only, which may apply to your savings income in certain situations. There is also a 'personal savings allowance' of £1,000, 2018/19 for saving income only.

If you have any taxable savings income above the basic rate limit, you will have to pay more tax on it. This is firstly charged at the higher rate of 40% on the income above that limit. This means that in 2018/19 you will pay tax at the rate of 40% on taxable savings income above the limit of £34,500 2018/19, the 'personal savings allowance' is reduced to £500 for higher rate taxpayers.

If your taxable savings income exceeds the higher rate limit, you will have to pay tax at the additional rate of 45% on the income above that limit. The higher rate band limit is £150,000 for 2018/19. There is a 'personal savings allowanc'e  of £500, 2018/19 for savings income only.

How does the starting rate for savings work?

The starting rate for savings is a special 0% rate of income tax for savings income that falls within certain limits. It will only apply to you if your earned income is  low. The starting rate for savings band is £5,000 for 2018/19.

If your taxable earned or non-savings income is above your personal allowance plus £5,000, the starting rate for savings will not apply to your taxable savings income.

If any of your taxable savings income falls within £5,000 after your personal allowance, you will not be liable to pay tax on that taxable savings income.

How does the personal savings allowance work?

On 6 April 2016 the personal savings allowance was introduced, £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate tax payers aren’t eligible.

The allowance works together  with the starting rate for savings and both are dependent on your total taxable income.

The easiest way to establish if you qualify is to add up your non- savings income, if it is below or within your personal allowance plus £5,000 then the starting rate for savings will apply.

If this doesn’t cover all of your savings income then apply the personal savings allowance. To determine which rate to use add up all of your taxable income including savings income. If it's £46,350  or less then use £1,000, if between £46,351 and £150,000, use £500. Note, Scottish taxpayers use the English rates and bands for savings income.

Any savings income over these amounts will be taxable at the appropriate rate and it is your responsibility to inform HMRC. Where possible the amount owed will be collected via your tax code but if this isn’t possible a self-assessment tax return will be required.

Gift Aid alert – People who at present, use the tax they pay on savings as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

What are the upper and lower limits of income to get the starting rate for savings?

The guide below just provides the general rule. This may not provide you with the correct information if you have additional tax allowances or expenses that you can claim.

If you have taxable earned or non-savings income of between £11,850 and £16,850 the savings rate will apply to at least part of your savings income.

What are the upper and lower limits of income to get the starting rate for savings if you also get blind person's allowance?

The guide below provides the general rule. This may not provide you with the correct information if you have additional tax allowances or expenses that you can claim.

If you are also receiving blind person's allowance the upper limits will be increased by this amount and you will get the savings rate if your taxable non-savings income is between £11,850 and £19,240.

What tax rates apply to my dividends?

The dividend allowance has been reduced to £2,000 for 2018/19 (previously it was £5,000). Any dividend payments  above £2,000 are taxable at either 0%, 7.5%, 32.5% or 38.1% depending on your total taxable income. For example, a person receiving £3,000 in dividends won't pay tax if their total taxable income is under their personal allowance. However, they will pay tax on £1,000 at 7.5% if their total taxable income is between £11,851 and £46,350, at 32.5% on an income between £46,351 and £150,000 and 38.1% on income of £150,001 and over. Note, Scottish taxpayers use the English rates and bands for dividends.

Gift Aid alert – People who at present, use the dividend tax credit as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

More information

What if my only taxable income is savings income?

If you have no taxable earned income and all your income is taxable savings income, you will get your personal allowance against part of your income. The next part of your income that falls within the starting rate for savings band, £5,000, will not be taxed. Then you get the personal saving allowance 0f £1,000  where the income won't be taxed. The balance of your income that exceeds the starting rate band and personal savings allowance will be taxed at the basic rate of 20%.

What if my non-savings or earned income is above the upper limit for the starting rate for savings?

If your taxable non–savings or earned income is more than the upper limits for the starting rate for savings the 0% savings rate will not be available. However, you will be eligible for the personal savings allowance of £1,000 (£500 for incomes over £46,350 but below £150,000) savings income over this will be taxed in full at 20% (40% over £46,350, 45% over £150,000).

What if my earned income is less than my tax allowances?

If your taxable non-savings or earned income is below your tax allowances, you will be able to set some of your tax allowances against your savings income.

Any savings income that exceeds your tax allowances but is within the 0%  starting rate for savings or personal savings allowance will not be taxable. The balance of your savings income that exceeds the starting rate band  and the personal savings allowance will be taxed at the basic rate of 20%.

From April 2016 banks and building societies will not deduct tax at source. In 2017 banks and building societies started to inform HMRC about savings interest, but it remains  your responsibility to ensure that HMRC hold the correct information and that the tax is paid on any income above the savings and dividend allowances.

What if my non-savings or earned income falls between the lower and upper limits for the starting rate for savings?

If you have used up your tax allowances against your non-savings or earned income, but your remaining non-savings income is less than the upper limit of the starting rate band, you can use the balance of the starting rate band against your taxable savings income, if necessary you can then use your personal savings allowance. This means some or all of your taxable savings income won't be taxed any amount not covered by the 0% starting rate or the personal savings allowance is then taxed the basic rate of 20%.

The following examples for 2018/19 explain the interactions between the SR and the PSA.

Example 1 - Alex is 71 and has non savings income of £11,000. In addition he receives £600 in savings income. His non savings income is below £16,850 and the savings income is within the 0% savings rate of £5,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 2 - If Alex’s non savings income is £16,450, it is still below the £16,850 threshold and £400 of  his savings income is covered by the 0% savings rate. The remaining £200 is covered by the Personal Savings Allowance. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 3 - If Alex’s non savings income plus savings interest is between £16,851 and £46,350, he will not be eligible for the 0% Starting Rate but his savings income will be covered by the Personal Savings Allowance of £1,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 4 - If Alex’s non savings income is between £46,351 and £150,000 he will not be eligible for the 0% starting rate and only £500 of his savings income will be covered by the Personal Savings Allowance. The remaining £100 is taxable at 40% and he will need to contact HMRC to arrange payment.

 

What income is taxable?

You do not have to pay tax on all of your income. In tax terms, some income is called ‘taxable’ – you have to pay tax on it, and some is ‘non taxable’, ‘not taxable’, ‘exempt’ or ‘tax free’ – you do not have to pay tax on it.

If you have income that is not taxable, you do not normally need to tell HM Revenue & Customs (‘HMRC’) about it.

It is not always easy to know if a certain type of income is taxable or not. We list the most common types of taxable income and tax free income to help you.

As the tax rules are complex, it has not been possible to include all types of income on this page.

Taxable Income

The following list includes income that is normally taxable.

Earned income

Wages and salaries, including holiday pay, bonuses and tips

Profits from self-employment

Pensions from occupational pensions, private pensions, personal pension plans or retirement annuity policies

Foreign pensions - 100% (90% up to 2016/17) and lump sums paid under overseas pension schemes in certain circumstances

One off payments from pension funds

Benefits in kind, which might also be called ‘perks’ of your job. This includes things like company cars and private medical insurance. The tax treatment of benefits in kind sometimes depends on whether you earn £8,500 a year or more.

Redundancy/leaving payments over £30,000

State benefits

The UK Government provides support to people in certain times of need, by way of the state benefits system. Some benefits are taxable, but others are not

The State Pension IS taxable as are Job seekers allowance and Carers allowance.

For a list of state benefits and their tax treatment. Please refer to the state benefits checklist Link to LITRG website http://www.litrg.org.uk/low-income-workers/state-benefits in the ‘tax credits and benefits’ section of the Low Income Tax Reform Group (LITRG) website.

Savings and investment income

Bank or building society interest - Also read 'what tax allowances apply to me?'

Dividends from shares or from collective investments such as investment trusts - Also read 'what tax allowances apply to me?'

National Savings and Investments (‘NS&I’) products can cause confusion because some are taxable and some are tax free. Common taxable NS&I products are: Income Bonds, the Investment Account, Guaranteed Income Bonds and Guaranteed Growth Bonds – the interest is taxable, but tax may not be deducted at source.

Interest from savings deposits with credit unions

Purchased annuities - income element

Taxable gains on life assurance policies or investment bonds

UK companies - interest

UK Government stocks, or gilts, interest, for example, Treasury Stock and War Loan Stock

UK unit trusts or Open-Ended Investment Companies, both interest and dividends

Other income

Property letting – most income from renting out a property, including from second properties. You can claim certain expenses against the rents. If you rent out a room in your home, you should read our separate page on ‘rent a room’ relief. Link to 5a

Trust or settlement income

Income paid to the estate of a deceased person

Jurors' financial loss allowance, when the juror is self-employed

Motor mileage allowance profits paid to volunteer drivers.

Pre owned assets – a tax charge which can arise on something you have given away but still retain some interest in, or benefit from

What income is tax free?

The following list includes income that is normally tax free.

Benefits

The UK Government provides support to people in certain times of need, by way of the state benefits system. Some benefits are taxable, but others are not. Importantly, tax credits and pension credits are not taxable income and neither is Universal Credit.

For a list of state benefits and their tax treatment. Please refer to the state benefits checklist Link to LITRG website http://www.litrg.org.uk/low-income-workers/state-benefits in the ‘tax credits and benefits’ section of the Low Income Tax Reform Group (LITRG) website.

Non-savings income

Foreign social security benefits – a large number are exempt

Friendly Societies – any gains on qualifying insurance policies

Gallantry awards – annuities and additional pensions paid to holders of the Victoria Cross, George Cross and most other gallantry medals

Insurance benefits paid to a person who is sick, disabled or unemployed, to meet her/his financial commitments. These include benefits paid under mortgage protection insurance, permanent health insurance, payment protection, or credit, insurance and long-term care insurance

Life Assurance policies – certain bonuses and profits

Local authority home improvement grants

Lottery, football pools and other betting winnings, for example, from horse racing

Lump sums from UK approved pension schemes up to 25% of the capital value – note that part of 'trivial commutation' lump sums above the 25% limit are taxable

Maintenance payments following divorce or separation

Disability pensions of members of the armed forces are tax free. Any pension awarded to an employee on retirement because of an injury at work is free of tax.

Premium Bond prizes

Purchased annuities – capital element of amount received

Renting out a room in your own home – you should read our separate page on ‘rent a room’ relief link to 5a as part of the income may not be taxable

Repayment supplement (interest) in connection with overpaid tax

Wounds and disability pensions

Some savings and investments income sources

National Savings and Investments (‘NS&I’) – interest on Savings Certificates and Children’s Bonus Bonds

Individual Savings Accounts (‘ISA’) income

Insurance policies or investment bonds – withdrawal tax free up to 5% of the amount originally invested

How can I work out my tax?

You can work out your tax by following these four stages:

1.Work out whether your income is taxable or not.

Some income is taxable and some is tax-free. See our page ‘What income is taxable’ for more information.

2. Work out the allowances you can deduct from your taxable income or your final tax bill.

There are several different tax allowances to which you might be entitled.

Every man, woman and child in the UK has a ‘personal allowance’. For 2018/19 the personal allowance for everyone (on incomes below £100,000) is £11,850.

There is also a blind person’s allowance for those who qualify. Despite its name, you do not have to be completely without sight to claim it, so if you have very poor eyesight, check if you could be entitled.

Higher age-related personal allowances might be available in previous years depending on when you were born. It is worth checking that you claimed them if you were born before 6 April 1938.

If you are part of a married couple or a civil partnership and either you or your spouse or partner was born before 6 April 1935, a married couple’s allowance might be available. Finally the marriage allowance, available to married couples and civil partners who are basic rate taxpayers where one of them has unused allowances.

You can find out more information on these allowances on our page ‘what tax allowances am I entitled to?’

3. Work out at what rate your income is taxed.

If you qualify,  some  savings income might be taxed at 0%. The rules for savings income changed on 6 April 2016.

A £2,000 Dividend allowance is available in 2018/19 (2016/17 & 2017/18 it was £5,000) and only amounts above this allowance will be taxable at your marginal rate. If you are a basic rate taxpayer 7.5%, higher rate 32.5% and additional rate at 38.1%.

Next, there is the basic rate band, where most types of income are taxed at 20%. Most people are within the basic rate band.

But for people with higher levels of income, 40% and 45% tax rates can also apply.

In Scotland there are 5 tax bands from April 2018.

See our section ‘what tax rates apply to me?’ for more detail.

4. Finally, consider whether you can deduct anything from your final tax bill.

The most common deduction is tax you have already paid, either in the UK or overseas.
But take care: some deductions might not be allowed and some tax is not refundable, for example, the tax credit on UK dividends.

Example calculation
To work out your tax, you have to do the following calculation:

  • First, take your allowances from your income to work out your taxable income.
  • Second, HM Revenue & Customs charge tax on your taxable income using the rates of tax that apply to you. The tax rates are set each year.

For most individuals with simple tax affairs the way the tax calculation works is as set out below. The tax year runs from 6 April one year to 5 April the next. Negative or minus numbers are shown in brackets.

£
Income – most income is taxable although some may be tax free xxxx
Take off your tax allowances xxxx
You are left with the amount of your taxable income xxxx
Calculate your tax liability using the tax rates that apply to you xxxx
Take off the amounts you get due to any special allowances xxxx
Take off any tax already deducted from the income you receive before you get it xxxx
Tax now due or (repayable) xxxx or
(xxxx)

So if you have a job earning £300 a week, you are single, your 2018/19 tax calculation would probably work out like this, using the table above:

£
Income – wages: £300 a week x 52 weeks 15,950
Take off your personal allowance (11,850)
You are left with the amount of your taxable income:
£15,950 – £11,850
4,100
Calculate your tax liability:
£4,100 x 20%
820
Take off the amounts you get due to any special allowances (None)
Take off any tax already deducted from the income you receive before you get it:
This depends on the PAYE code used for your wages but here we assume you were on the correct code for the whole tax year
(820)
Tax now due or (repayable) £ 0

How much can I gift aid?

You have to pay tax to gift aid a donation to a charity. This is because the charity is claiming back from HMRC, the tax you have already paid. If you don't pay any this isn't possible.

This is not and exhaustive list, but start by adding up the tax you pay on employment, pensions, rental income and savings. Be aware that in April 2016/17 the rules on the taxation of savings income  changed and the dividend tax credit is being abolished and this may reduce the tax you pay.

Once you know how much tax you are likely to pay in the year, multiply the amount by 4, the result is the amount you can gift aid in the year.

For example; if you pay £1,000 in tax you can gift aid up to £4,000 of donations. Your chosen charities will claim back the £1,000 tax you have paid.

Keep records and if you are more than a basic rate taxpayer it is worth informing HMRC to claim gift aid relief.

For information - The gift aid regulations state that attractions like museums and zoos must charge a higher entry fee to people choosing to gift aid. This has not been practiced by many over the years ,but is being more rigorously enforced these days.

Do I need to pay tax on my dividends?

From 6th April 2018 the dividend allowance is £2,000 (previously £5,000 until 2017/18). Any dividend payments  above £2,000 will be taxable at either 0%, 7.5%, 32.5% or 38.1% depending on your total taxable income. For example, a person receiving £3,000 in dividends won't pay tax if their total taxable income is under their Personal Allowance. However, they will pay tax on £1,000 at 7.5% if their total taxable income is between £12,500 and £50,000, at 32.5% on an income between £50,001 and £150,000 and 38.1% on income of £150,001 and over.

Note - Scottish taxpayers use the UK rates and bands for dividend income.

Gift Aid alert – People who at present, use their dividend tax credit as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

Am I entitled to Marriage Allowance?

Yes, providing your spouse or civil partner is a basic rate tax payer and you have unused Personal Allowance to transfer. The Marriage Allowance is calculated as 10% of the basic Personal Allowance, for 2019/20 this is £1,250. To apply go to www.gov.uk/marriage allowance and follow the prompts. If you are unable to do this digitally contact HMRC on 0300 200 3300  and say 'marriage allowance' when prompted.  You will know when it has been transferred because new tax coding notices will be issued. The recipient's tax code will be prefixed with the letter M, the transferors tax code will be prefixed with the letter 'N'.

Where can I find out more about getting help with my tax debt?

For PAYE and non-business debt you can contact us for more information on Employer and HMRC error. You can also visit the tax debt section of the TaxAid website. From there, you can also download their tax debt booklet in PDF format, which is a very helpful guide to the steps you should take.

TaxAid is a separate charity providing free tax advice to working people on low incomes who cannot afford to pay a professional adviser and particularly those who are in tax debt crisis. Their service is also independent and confidential.

How do I find out if I’ve paid too much tax?

To work out accurately if you have paid too much tax, and whether or not you are due a repayment, you will have to work out your tax liability and compare this to how much you have paid.

What information do I need?

To start with, you will need to gather all the information about your income and tax position. This may include the following documents for the tax year:

  • P60 and / or P45 from an employer or pension provider
  • P11D from an employer
  • Details of taxable state benefits received
  • Bank statements or certificates of tax deducted
  • Building society statements or certificates of tax deducted
  • Dividend certificates
  • Details of rental income and expenses.

How do I work out my tax liability?

We set out an example tax calculation and explained the steps involved in calculating your tax liability on our page, ‘How do I work out my tax?’

To work out your tax liability, you first need to calculate your taxable income. You must include the gross amounts in your calculation, that is, the amounts before tax is taken off.

You may be able to deduct certain expenses or claim allowances against your gross taxable income.

You need to calculate your tax liability using the correct rates of tax, and you can then deduct the tax you have already paid, for example, under PAYE, to work out your tax overpayment or underpayment.

For further assistance you can contact us on 01308 488066 or via the secure email link on this website. A tax adviser will check your personal situation, help you resolve it or guide you in the right direction.

What are the current tax rates and allowances?

Income tax allowances

Allowances 2015/16 2016/17 2017/18 2018/19 2019/20
Personal Allowances 
Those born after 5 April 1948 10,600 11,000 11,500 11,850 12,500
Those born between 6 April 1938 and 5 April 1948 10,600 11,000 11,500 11,850 12,500
Those born before 6 April 1938 (i) 10,660 11,000 11,500 11,850 12,500
Income limit for personal allowance for those born before 6 April 1938 (ii) 27,700 N/A N/A N/A N/A
Income limit for personal allowance (iii) 100,000 100,000 100,000 100,000 100,000
Married Couple's Allowance: (iv)
Maximum amount 8,355 8,355 8,445 8,695 8,915
Minimum amount 3,220 3,220 3,260 3,360 3,450
Income limit for Married Couple's Allowance for those born before 6 April 1935 27,700 27,700 28,000 28,900 29,600
Blind Person's Allowance 2,290 2,290 2,320 2,390 2,450
Marriage Allowance (v) 1,060 1,100 1,150 1,190 1,250
Trading Allowance 1,000 1,000 1,000
Property Allowance 1,000 1,000 1,000

(i) In 2015/16 only people born before 6 April 1938 are entitled to the age-related personal allowance. Individuals born on or after 6 April 1938 are entitled to the basic personal allowance.
(ii) The age-related personal allowance reduces where the individual's income in the tax year is above the income limit by £1 for every £2 above the limit until the level of the basic personal allowance is reached.
(iii) The personal allowance reduces where the individual’s income in the tax year is above the income limit by £1 for every £2 above the limit, until the level of the basic personal allowance is reached.
(iv) Married Couple’s Allowance may apply if one of the couple was born before 6 April 1935, relief given at 10%
(v) The allowance is the transferable part of the personal allowance, which applies to transfers between spouses or civil partners who were both born after 6 April 1935. It can be transferred where neither the transferer nor transferee is liable to income tax above the basic rate.

Tax Bands for England, Scotland and Wales

Band Band name Tax Rate
 Scotland     Wales Rest of UK
£12,500* - £14,549 Starter Rate 19%
£12,500 - £50,000 Basic Rate 20% 20%
£14,549* - £24,944 Scottish Basic Rate 20%
£24,944* - £43,430 Intermediate Rate 21%
£43,430 - £150,000 Higher Rate 41%
£50,000 - £150,000 Higher Rate 40% 40%
Above £150,000 Top Rate 46%
Above £150,000 Additional Rate 45% 45%

* This assumes you are entitled to the UK personal allowance. The starter, basic and intermediate rate bands together for Scottish income tax are £30,930 (£12,500 + £30,930 = £43,430)

Savings Allowances

Allowances 2015/16 2016/17 2017/18 2018/19 2019/20
Dividend Allowance 5,000 5,000 2,000 2,000
Personal Savings Allowance
   Basic rate taxpayer 1,000 1,000 1,000 1,000
   Higher rate taxpayer 500 500 500 500
   Additional rate taxpayer nil nil nil nil

Income Tax Rates (Personal and Savings)

2015/16 2016/17 2017/18 2018/19 2019/20
Basic rate of 20% up to income of 31,785 32,000 33,500 34,500 37,500
Higher rate of 40% on income of 31,786-150,000 32,001-150,000 33,501-150,000 34,501-150,000 37,501-150,000
Additional rate of 45% on income of 150,000+ 150,000+ 150,000+ 150,000+ 150,000+
Start up rate of 0% on savings up to (within limits) 5,000 5,000 5,000 5,000 5,000
Dividends basic rate taxpayer 10% 7.5% 7.5% 7.5% 7.5%
Higher rate taxpayer 32.5% 32.5% 32.5% 32.5% 32.5%
Additional rate taxpayer 37.5% 38.1% 38.1% 38.1% 38.1%

Capital gains tax

2015/16 2016/17 2017/18 2018/19 2019/20
Standard rate * 18% 10% 10% * 10% * 10% *
Rate for higher and additional rate taxpayers * 28% 20% 20% * 20% * 20% *
Annual exemption 11,100 11,100 11,300 11,700 12,000
Entrepreneurs' Relief rate 10% 10% 10% 10% 10%
Entrepreneurs' Relief lifetime limit 10M 10M 10M 10M 10M
Inventors' Relief rate 10% 10% 10% 10% 10%
Inventors' Relief lifetime limit 10M 10M 10M 10M 10M

* 8% surcharge for gains on residential property and carried gains. This makes the rates 18% and 28% respectively.

Inheritance tax

Nil Rate Band (NRB) 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
Chargeable lifetime transfers (after exemptions) 325,000 325,000 325,000 325,000 325,000 325,000
IHT nil rate
Lifetime rate 20% 20% 20% 20% 20% 20%
Death rate 40% 40% 40% 40% 40% 40%
Residential nil rate band (RNRB) N/A N/A 100,000 125,000 150,000 175,000

 

What is rent-a-room relief?

Income from renting out a room to a lodger may qualify for ‘rent-a-room relief’, if:

  • your gross rent-a-room income does not exceed £7,500, 2018/19 (£4,250 up to 2015/16) for the tax year (before the deduction of any expenses),
  •  the source of the income relates only to one residence, and
  •  the following conditions are met:
  1. the income arises from the letting of furnished accommodation in a ‘residence’ in the UK, or from associated goods and services (for example providing meals, cleaning or laundry services to a lodger),
  2. the house in which the room is let is your only or main residence, and
  3. if it were not for the rent-a-room relief, the income would be taxable (either as trading income, property income or miscellaneous income).

If all of the above conditions are met, the income is exempt from tax and you may not claim any deductions for related expenses. You do not need to do anything for the exemption to apply; it will apply automatically unless you ‘opt out’.

HMRC are reviewing the rent-a-room allowance this year.

What if my rent-a-room income exceeds £7,500  for any one year?

If you meet all of the conditions for rent-a-room relief above, but your gross rental income exceeds £7,500, 2018/19, you do not qualify for the automatic exemption.

However, you can make an election to opt in to an ‘alternative basis’. The taxable amount will then be the gross rent received, plus any payments received for meals and services, less £7,500, 2018/19.

This election must be made to HMRC in writing by 31 January, in the second year after the end of the relevant tax year. For example, if you wish to opt in to the ‘alternative basis’ for the tax year ended 5 April 2018, you must make the election by 31 January 2020. You usually do this by ticking the relevant box on your self assessment tax return that you want the relief to apply.

What if the rent-a-room income is split between me and my spouse/partner/flatmate?

If you and another person are both due to receive rental income from the same property, then the allowance is shared equally between you. The above tests and conditions still apply, but the threshold in each case is £3,750, 2018/19 instead of £7,500, 2018/19. This means that if your income exceeds £3,750 then you can elect to opt in to the ‘alternative basis’, and if it does not then it is automatically exempt.

A quirk in the rules is that even if more than two of you are due to share the rental income, you still each get relief for up to £3,750. So if three of you own a property together and sub-let a room to a lodger, overall you get 3 x £3,750 relief – that is, £11,250!

What tax allowances am I entitled to?

Allowances explained below;

  • What are tax allowances?
  • What is the personal allowance?
  • What is the age-related personal allowance?
  • What is the starting rate for savings and the personal savings allowance?
  • What is the dividend allowance?
  • What is the marriage allowance?
  • What is blind person’s allowance?
  • What is married couple’s allowance?
  • Can I transfer my allowances to my spouse or civil partner?

What are tax allowances?

Most tax allowances work by reducing your taxable income to reduce the amount of income tax you pay. This means that you can have a certain amount of taxable income each year, tax free.

You only pay income tax on taxable income that is above your tax allowances.

You are only eligible for UK tax allowances if you are resident in the United Kingdom or if you are a citizen of an EEA country.

If you are resident in the UK but not domiciled in the UK and you claim to use the ‘remittance basis’ of taxation, you may not be eligible for UK tax allowances

What is the personal allowance?

The personal allowance is a tax allowance that is available to most people who are resident in the UK. It reduces the amount of taxable income on which you pay tax.

The basic personal allowance is £11,850 for 2018/19.

The personal allowance can be reduced if your taxable income is over £100,000, but we aim this guidance at low-income taxpayers so do not cover those issues here.

If you were born before 6 April 1938, you may be able to claim a higher personal allowance for an earlier year,but note that it ceased in 2016/17. This was known as the 'age-related allowance'.

What is the age-related personal allowance?

The age-related personal allowance ceased in 2016/17,  However, if you were born ore 6 April 1938 you may be able to claim for earlier years. It used to increase your personal allowance and reduce the amount of tax you pay.

What is the starting rate for savings and the personal savings allowance?

Starting Rate for Savings (SR) - On 6 April 2015 the 10% starting rate was abolished and replaced by the 0% starting rate. The R85, the form used to inform a savings provider to pay interest gross was also discontinued.

The 0% band from 2015/16 through to 2018/19 is £5,000. It is restricted by non- savings taxable income  so that none of the band will be available if that income is above their personal allowance (& blind person’s allowance if claimed) plus the £5,000 starting rate.

Personal Savings Allowance (PSA) - On 6 April 2016 the Personal Savings Allowance was introduced, £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate tax payers aren’t eligible. These figures remain the same for 2018/19.

The two allowances work together and are dependent on your total taxable income.

Interest Paid Gross – From 6 April 2016 savings income is paid gross (without tax being taken). The R85 was also discontinued.

The easiest way to establish if you qualify is to add up your non- savings income, if it is below or within your personal allowance plus £5,000 then the Starting Rate for Savings will apply.

If this doesn’t cover all of your savings income then apply the Personal Savings Allowance. To determine which rate to use add up all of your taxable income including savings income. If it's £46,350  or less then use £1,000, if between £46,351  and £150,000, use £500. Note, Scottish tax payers use the UK rates and bands for savings.

Any savings income over these amounts will be taxable at the appropriate rate and although HMRC should be informed by the banks and building societies it remains your responsibility to ensure HMRC have the correct information. Where possible the amount owed will be collected via your tax code but if this isn’t possible a self-assessment tax return will be required.

Gift Aid alert – People who at present, use the tax they pay on savings as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

The following examples for 2018/19 explain the interactions between the SR and the PSA.

Example 1 - Alex is 71 and has non savings income of £11,000. In addition he receives £600 in savings income. His non savings income is below £16,850 and the savings income is within the 0% savings rate of £5,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 2 - If Alex’s non savings income is £16,450, it is still below the £16,850 threshold and £400 of  his savings income is covered by the 0% savings rate. The remaining £200 is covered by the Personal Savings Allowance. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 3 - If Alex’s non savings income plus his saving interest is between £16,851 and £46,350, he will not be eligible for the 0% Starting Rate but his savings income will be covered by the Personal Savings Allowance of £1,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 4 - If Alex’s non savings income is between £46,351 and £150,000 he will not be eligible for the 0% starting rate and only £500 of his savings income will be covered by the Personal Savings Allowance. The remaining £100 is taxable at 40% and he will need to contact HMRC to arrange payment.

What is the dividend allowance?

From 6th April 2018 the dividend allowance is reduced to £2,000 (From 2016/17 to 2017/18 it was £5,000)  Any dividend payments  above £2,000 are taxed at either 0%, 7.5%, 32.5% or 38.1% depending on your total taxable income. For example, a person receiving £3,000 in dividends won't pay tax if their total taxable income is under their personal allowance. However, they will pay tax on £1,000 at 7.5% if their total taxable income is between £11,851 and £46,350 at 32.5% on an income between £46,351 and £150,000 and 38.1% on income of £150,001 and over. Note, that Scottish taxpayers use the English rates and bands for dividends.

Gift Aid alert – People who at present, use the dividend tax credit as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

What is the marriage allowance?

Not to be confused with the Married Couples Allowance (MCA) below! If you are entitled to the MCA, you cannot claim this one as well. The Marriage Allowance can be claimed by a married couple or civil partnership where both partners are no more than a basic rate taxpayers. The lower earner can transfer a fixed amount of £1,185, 2018/19 of allowance to the other. Doing so can only reduce the recipient’s liability to nil, it cannot create a refund.

If you contact HMRC to stop transferring the allowance to your partner, it will end at start of the next tax year.

If your partner contacts HMRC to stop receiving your allowance, HMRC will backdate the change to the start of the current tax year.

If your partner dies after you’ve transferred some of your Personal Allowance to them:

  • their estate will be treated as having the increased Personal Allowance
  • your Personal Allowance will go back to the normal amount

If your partner transferred some of their Personal Allowance to you before they died:

  • your Personal Allowance will remain at the higher level until the end of the tax year (5 April)
  • their estate will be treated as having the smaller amount

If you get divorced or dissolve your civil partnership
Contact HMRC to cancel the allowance. You can have the change applied at the start of the tax year (6 April) you got divorced in - or the start of the next one.

If you don’t tell HMRC, the allowance will end automatically at the end of the tax year (5 April).

What is blind person’s allowance?

Blind person's allowance (‘BPA’) reduces the amount of taxable income that you have to pay tax on. If you are eligible for BPA, you are entitled to it in addition to the personal allowance or age-related personal allowance. If your income is not high enough for you to benefit from the allowance you can transfer the unused part it to your spouse or civil partner.

The BPA for 2018/19 is £2,390.

If you are entitled to BPA, you must tell HMRC to claim it.

You do not have to be entirely without sight to claim the BPA, but you do have to meet one of the following criteria:

  • You can claim if you are registered as blind with a local authority in England and Wales; or
  • If you live in Scotland or Northern Ireland, your sight must be so bad as to stop you performing any work for which eyesight is essential.

Entitlement to BPA does not depend on your age.

The amount of BPA to which you are entitled does not depend on your level of income. The BPA is not reduced where your income is more than a certain amount.

If both you and your spouse or civil partner are entitled to claim BPA you can each claim it independently,

The English and Welsh system in more detail

An eye specialist can check your sight and, if appropriate, certify that you are blind. You can ask your GP to refer you to an eye specialist.

Social Services should then contact you to see if you want to be added to the register, and if you do, then the date that the consultant signed your certification form is the date of registration.

Once you are registered, contact HMRC as soon as possible and tell them that you want to claim BPA.

If in the previous tax year you obtained evidence of blindness on which the registration will be eventually made, but you only registered the following tax year, you can claim the relief for both years.

What is married couple’s allowance?

The married couple's allowance (MCA) does not reduce the amount of taxable income on which you pay tax. Once your tax liability has been calculated the MCA is then removed. It can reduce your tax bill to zero but will not produce a refund.

You are only entitled to MCA if you are married or in a civil partnership and at least one of you was born before 6 April 1935.

MCA works by deducting 10% of the allowance from the tax due on your taxable income. If you are a tax payer your coding notice from HMRC should show half of the MCA amount.

For 2018/19 the full allowance is £8,695. This means you get a maximum deduction of £869.50 from your income tax.

In the year of marriage the allowance is calculated monthly, a marriage in June would mean that 7/12ths of the allowance would be available.

You can get married couple’s allowance in full in the year that you separate.

If you and your spouse or civil partner are later reconciled the allowance is available for the tax year of reconciliation. If this is also the year in which you separated, the allowance is given without any break.

What is the relief for maintenance payments?

Maintenance payments relief does not reduce the amount of taxable income on which you pay tax. It is used to calculate an amount to reduce your tax bill instead.

Maintenance payments relief is being phased out. You are only entitled to the relief if you meet all of the following conditions:

  • You are separated or divorced or your civil partnership has been dissolved.
  •  You, or your ex-spouse or former civil partner, were born before 6 April 1935.
  • You are making maintenance payments by Court Order.
  • The maintenance payments are for the benefit of your ex-spouse or former civil partner or for your children under the age of 21.
  • Your ex-spouse or former civil partner is not remarried or in a new civil partnership.

Maintenance payments relief works by deducting 10% of the relief from the tax due on your taxable income.

For 2018/19 the maximum relief is £3,360. This means you get a deduction of £336 from your tax liability.

If your maintenance payments are lower than £3,360, your deduction is 10% of the amount of maintenance you pay.

Full maintenance payments relief is available in the year of separation, but relief is not available after the spouse or civil partner remarries or registers a new civil partnership.

Can I transfer my allowances to my spouse or civil partner?

We are often asked if married couples or civil partners can transfer their tax allowances to their spouse or partner if they do not use them. Some allowances are transferable, but others are not.

Marriage allowance - You can transfer  some of your basic personal allowance to your spouse or civil partner, providing neither of you are higher rate tax payers and the one transferring has unused allowance.

Blind person's allowance - You can transfer the blind person's allowance (‘BPA’) to your spouse or civil partner, if your income is too low to make use of it. Your surplus BPA can then reduce their taxable income for tax purposes. If you are a non-taxpayer and your spouse or civil partner pays tax you can still transfer your BPA to them. You can transfer the BPA by contacting HMRC.

Married Couple's allowance - You can transfer the married couple’s allowance to your spouse or civil partner, if your income is too low to make use of it..
If you are claiming both blind person’s allowance and married couple’s allowance you cannot transfer one allowance and not the other. You must transfer both allowances together.
How does marriage separation affect my tax allowances?
Separation affects your married couple's allowance and may bring you entitlement to maintenance payments relief. As noted above, both of these allowances apply only if either you or your spouse or civil partner was born before 6 April 1935.

HM Revenue & Customs (‘HMRC’) will treat you as living together if you are separated due to circumstances beyond your control, for example, if one of you is taken into a nursing home or hospitalised long term.

For income tax purposes you are treated as living with your spouse or civil partner unless you are separated:

  • under an order of a Court, or
  • by a formal deed of separation executed under seal, except in Scotland, where the deed should be witnessed, or
  • in such circumstances that the separation is likely to be permanent.

How much can I give away each year without creating Inheritance Tax implications?

You can give a total of £3,000 without any Inheritance Tax implications, in addition £5,000 if it is a wedding present to a child, £2,500 to a grandchild getting married or £1,000 to any other person on their marriage.

If you did not use the £3,000 exemption the previous year it can be aggregated with the current year. This only applies for one year so £6,000 is the maximum.

Apart from this you may give as many small gifts as you wish, provided they do not total more than £250 per person

Also, you may give larger sums than all those mentioned above but you would need to survive 7 years from the date of the gift for it not to be included in the calculation of your estate.

Another useful exemption is 'normal expenditure out of income'. Lifetime gifts are exempt if they are part of the donor's normal expenditure, made out of income and the donor is left with sufficient income to maintain his or her usual standard of living.

Can you explain the 0% Starting Rate for Savings and the Personal Savings Allowance?

Starting Rate for Savings (SR) - On 6 April 2015 the 10% starting rate was abolished and replaced by the 0% starting rate.

The 0% band for 2015/16, 2016/17, 2017/18 & 18/19 is £5,000. It is restricted by non- savings taxable income so that none of the band will be available if that income is above their personal allowance (& blind person’s allowance if claimed) plus the £5,000 starting rate.

Personal Savings Allowance (PSA) - On 6 April 2016 the Personal Savings Allowance was introduced, £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate tax payers aren’t eligible.

The two allowances work together and are dependent on your total taxable income.

Interest Paid Gross – From 6 April 2016 savings income will be paid gross (without tax being taken). The R85 was also discontinued.

The easiest way to establish if you qualify is to add up your non savings income, if it is below or within your personal allowance plus £5,000, £16,500 2017/18 then the Starting Rate for Savings will apply.

If this doesn’t cover all of your savings income then apply the Personal Savings Allowance. To determine which rate to use add up all of your taxable income including savings income. If it's £46,350 or less then use £1,000, if between £46,351 and £150,000, use £500. If higher it doesn't apply.

Any savings income over these amounts will be taxable at the appropriate rate and it is your responsibility to inform HMRC. Where possible the amount owed will be collected via your tax code but if this isn’t possible a self-assessment tax return will be required. Scottish Taxpayers use the UK rates and bands for Savings interest.

Gift Aid alert – People who at present, use the tax they pay on savings as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

The following examples for 2018/19 explain the interactions between the SR and the PSA.

Example 1 - Alex is 71 and has non savings income of £11,000. In addition he receives £600 in savings income. His non savings income is below £16,850 and the savings income is within the 0% savings rate of £5,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 2 - If Alex’s non savings income is now £16,450, it is still below the £16,850 threshold and £400 of his savings income is covered by the 0% savings rate. The remaining £200 is covered by the Personal Savings Allowance. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 3 - If Alex’s non savings income plus his saving interest is between £16,851 and £46350, he will not be eligible for the 0% Starting Rate but his savings income will be covered by the Personal Savings Allowance of £1,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 4 - If Alex’s non savings income is between £46,351 and £150,000  he will not be eligible for the 0% starting rate and only £500 of his savings income will be covered by the Personal Savings Allowance. The remaining £100 is taxable at 40% and he will need to contact HMRC to arrange payment.

I have heard the age related allowance is changing what is actually happening?

The age allowance ceased on 6th April 2016, when everyone receives the same personal allowance unless their income is over £100,000.

The changes came into play in April 2013 when it was only possible to claim the age related lower allowance if you were born before 6th April 1948 and the higher allowance if you were born before 6th April 1938. Those who already had the allowance were allowed to keep it until the basic personal allowance caught up. From 6 April 2015 you needed to be born before 6 April 1938 to receive the age related allowance and it finally ceased in April 2016.

If you believe you may have been entitled to the allowance in previous years but have not received it or if you believe you may have received it in error you should contact HMRC on 0300 200 3300. If you would like to discuss your situation you can contact Tax Help.

I am retired but not yet 65, can I claim age allowance?

No, The age allowance ceased in April 2016.  However, you may still be eligible for earlier years if you were born before 6 April 1948 2014/15, 6 April 1938 2014/15 & 2015/16 . The entitlement to the allowance was based on age, not personal circumstance, unless your income exceeded 14/15 £27,000 or 15/16 £27,700, when it was reduced by £1 for every £2 of income over the threshold until the allowance was equal to the basic personal allowance 14/15 £10,500, 15/16 £10,660.

I was registered blind last year, can I claim the blind persons allowance?

In England and Wales providing you have been registered as severely sight impaired (SSI) and been given a registration number by your local authority you can claim the allowance. Beware because there are two registers and you must be registered SSI. In Scotland and Northern Ireland being registered blind means not being able to undertake any work for which eyesight is essential. The HMRC helpline number is 0300 200 3301. It is possible to backdate the allowance for one year and also to transfer it to your spouse or civil partner if you are not a taxpayer.

What is HMRC’s phone number?

Call HMRC for help with questions about Income Tax, including PAYE coding notices, Marriage Allowance and changing your personal details. Have your National Insurance number with you when you phone.

  • Telephone:  Tax: 0300 200 3300, Self Assessment 0300 200 3310
  • Textphone:  Tax 0300 200 3319,   Self Assessment 0300 200 3319
  • Outside UK: +44 135 535 9022

Phone lines are generally less busy before 10am, Monday to Friday and on Sundays.

Opening times:

  • 8am to 8pm, Monday to Friday
  • 8am to 4pm Saturday
  • 9am to 5pm Sunday
  • Closed bank holidays

Call Charges

The costs below are approximate. Check with your phone provider to find out the actual cost, particularly if you’re calling from abroad. Calls from payphones can cost more.

  • Cost from landlines (per minute): up to 10p
  • Cost from mobiles (per minute) approx: 3p-55p

 

What happens if I can’t afford to pay a tax demand?

If the tax owed is correct, and you cannot afford to pay in one go, HMRC might agree to make a ‘Time to Pay’ arrangement with you, so that you can spread the payments and get yourself back up to date.

HMRC are able to spread payments over five years, but will usually ask you to show that you cannot afford to pay for time periods over three years. This means showing that you do not have enough money to pay what you owe, nor would you be able easily to access money to pay it. HMRC will still aim to collect the debt from you as quickly as is reasonably possible and any tax paid late will attract interest. But if you make a Time to Pay arrangement in advance of the tax becoming due and you stick to it, HMRC should ‘suspend’ (that is, not charge you) penalties for late payment. An instalment option may cost more in the long run.

Sometimes you may be contacted by a Debt Collection Agency on behalf of HMRC. You should check that the agency is genuine by comparing it to the list on the HMRC website or by calling HMRC. Debt Collection Agencies have broadly the same powers as HMRC to agree time to pay over up to 12 months. They will not however have any understanding of how the debt has arisen and any queries about the amount should be raised directly with HMRC. Debt Collection Agencies are authorised to contact taxpayers by phone and letter. They are not authorised to carry out personal visits. If the Debt Collection Agency fails to reach an agreement with a taxpayer they will refer the case back to HMRC to consider further enforcement action. If you feel you are being pressurised into paying more than you can afford, ask to have your case referred back to HMRC.

If your circumstances mean that you will never be able to pay the debt, for example, you are retired and on pension credit, HMRC may agree to write off the debt under hardship. If, however, if you own your property they will want paying eventually but might allow the debt to be paid from your estate when you die.

I’ve completed a self assessment and don’t agree with the tax demand, what can I do?

Contact HMRC as soon as possible and ideally before the tax becomes due. The amount demanded may be wrong. In many cases, you may not agree with the amount of tax shown on your Statement of Account, or demanded by HMRC’s Debt Management and Banking section or debt collector. There could be a simple error - such as failure to credit a payment you have made - which can be sorted out by a phone call to the telephone number shown on your Statement of Account.

What’s a P800 tax calculation?

You will receive a P800 tax calculation if you owe more than £50 in tax providing it can be collected via your tax codes during the next tax year. If the tax can't be collected via your tax codes in the next year you will receive a PA 302 Simple Assessment instead. Whichever you receive, it is very important you check that the figures on the calculation are correct. If the figures are incorrect or the amount is less than £50, you should contact HMRC immediately giving them the correct information, the demand will be cancelled. If you agree with the P800 calculation, you should then try to understand why you did not pay enough tax before paying HMRC. This is important in working out whether you fall into one of the limited categories in which you can argue that you should not have to pay the bill.

It is possible that the underpayment has arisen due to your employer or pension payer not operating PAYE correctly. For example, they may not have applied the tax code that HMRC sent to them. If this is the case, HMRC should first seek the tax from the employer or pension payer, not from you. Alternatively, the underpayment might have arisen because HMRC itself failed to make timely use of information about you, which they had in their possession, this is covered by their concession ESC A19. In both cases you can ask HMRC to investigate and suspend collection until after they have done so. Also read the section 'How do I work out if I have paid enough tax?'

How is the tax collected?

For amounts under £3,000 HMRC will send you a P800 tax calculation and normally collect the unpaid tax by reducing your PAYE tax code 'in year' and for the next tax year. For larger amounts or if is not possible to collect via a tax code they will send you a Simple Assessment called a PA302 showing what you owe and how to pay.

If you have received A PA302 payment in full is due by the 31st January after the end of the tax year. For example, tax due for a 2017/18 PA302 will be due by 31st January 2019. Interest and surcharges being added for late payments.

For years up to 2016/17, if you didn't respond, they would have issued a tax return for the year(s) concerned and you would then have fallen within the system of self- assessment (SA).   The full payment being due by 31st January after the end of the tax year, with penalties for late filing and interest and surcharges being added for late payments.

HMRC have removed the self assessment burden for people who are only in it because their state pension is higher their Personal allowance (£11,850 for 2018/19, £11,500 for 2017/18) and it is the only way the tax can be collected. HMRC will issue a simple assessment PA302 which you just need to check and pay by the usual deadlines. If you are concerned about what is happening contact either HMRC or Tax Help for Older People.

 

How do I appeal against a HMRC decision?

Tax appeals

You may find this section helpful when you disagree with a decision HMRC have made.

This guide explains the basics of the tax appeal system. We are concerned with direct tax only, by which we mean things like income tax and National Insurance contributions; the definition of direct tax also includes other things that you might not expect, like student loan repayments. HMRC provide a list of direct taxes covered by their direct tax appeal process.

Another option that may be available to you when you disagree with a decision HMRC have made is ‘Alternative Dispute Resolution’. This can be used alongside the appeal process.

This section does not cover the following:

  • HMRC are hassling you for information you know you ought to give them or HMRC have discovered something you had not told them. You will have to sort that out with HMRC. You can find more information on enquiries in the self-employment section of this website.
  • If your dispute is about tax credits.
  • HMRC are demanding money that you owe, but you cannot afford to pay.

What is the appeal process?

If you disagree with HMRC and you have a right of appeal, you can make an appeal in writing to HMRC. You must normally make an appeal within 30 days of HMRC’s notice of their decision.

HMRC will consider your appeal. They will either agree with you and amend their decision or confirm their original decision. They will confirm their position in writing. You will have 30 days from the new decision to appeal, if you still do not agree with HMRC.

If you cannot agree your position with HMRC, HMRC may offer you a review. You can request a review at any time. A review is an internal process, carried out by another HMRC officer, not previously involved in your case.

If you still cannot agree your position with HMRC after a review, or do not want a review, you can appeal online to the First-tier Tax Tribunal. The tribunal will make a decision about your case. If you disagree with the tribunal’s decision, you may be able to make a further appeal. If you take your case further, you may have to pay HMRC’s costs as well as your own, so you should think carefully before doing so.

Can I make an appeal?

You can make an appeal if you have the right to appeal against an HMRC decision. You may have a right of appeal where HMRC, for example:

  • are looking into your tax affairs and demanding excessive amounts of information or taking too long without bringing their enquiries to an end;
  • have altered your self assessment after an enquiry because they think you got it wrong;
  • have made an assessment of tax on you or are disallowing a claim to a relief;
  • have refused you a sub-contractor's certificate;
  • have issued a coding notice which you think is wrong;
  • are demanding a penalty or surcharge unfairly.

When HMRC write to you with a decision, they should also tell you whether or not you have a right of appeal. If you do not know whether you have a right of appeal, ask HMRC in writing.

How do I complain to HMRC?

HMRC have published a charter, your charter’ that sets out what you can expect from them and what they expect from you.

This is part of HMRC’s undertaking to provide an even-handed and accurate service, based on mutual trust and respect.

If you are not happy with HMRC’s service or the way they have treated you, you may wish to make a complaint. We explain how to make a complaint to HMRC in this section. We also explain how to take matters further, if your complaint is not settled immediately to your satisfaction and what compensation you may seek if things have been handled badly.

If you disagree with a decision that HMRC have made, you may be able to make an appeal.

What are my rights and responsibilities in connection with tax?

HMRC expect you to be honest, to take care to get your tax right and to show their staff respect.
Equally, you can expect HMRC to show you respect, to help and support you with your tax, to treat you as honest and even-handedly. They must protect your information and respect your privacy.

When can I complain?

Most people do not like to complain, but if you are not happy with the way that HMRC are dealing with you then you should understand what you can do about it.

There are many things that may form the basis for a complaint. Do you think you:

  • have had to wait too long?
  • have been treated unfairly or impolitely?
  • have been discriminated against? You may feel that you have not received due consideration for any particular needs you might have, because of, a disability, your age or not having English as your first language.
  • are not getting the right amounts of money?
  • are not paying the right amounts of tax or National Insurance?
  • are not getting the right benefits, credits or allowances?
  • have been given incorrect advice or information?
  • received bad service in some other way?

Being denied the right amounts of money or the right benefits may be a case for making an appeal. But sometimes you may not receive what you are entitled to because of delay or an administrative problem. If that is the case, a complaint is the right remedy.

How do I make a complaint?

To make a complaint, you should write to, telephone or use the 'i' form in your Personal Tax Account. Most problems can be dealt with in this way. It is generally not possible to complain to HMRC by email.

To register or sign in to your Personal Tax Account go to www.gov.uk/personal-tax-account

You can call HMRC on 0300 200 3300.

You should tell them that you are unhappy and wish to complain.

If you write a letter, put ‘complaint’ on the envelope and at the top of the letter. If part or all of your complaint is due to discrimination, make that clear at the outset. This should ensure that your letter is passed directly to HMRC's complaints section.

What information should I provide to HMRC?

To be able to help with your complaint quickly, HMRC will need to know your full name, your National Insurance number and/or your Unique Taxpayer Reference for self assessment, your address and the last reference number that they used when contacting you. A telephone number where and when they might contact you would also be helpful.

Set out in the complaint what has gone wrong, when it happened, who you dealt with and what effect it has had on you. You should also set down what you want to see done to put it right. If the reason for your complaint is causing you hardship or distress, then tell HMRC.

What response can I expect from HMRC?

HMRC should respond very quickly. If you do not hear from HMRC within four weeks, then chase them. If they delay in responding to your complaint, you may be able to make a claim for compensation later.

If it is not possible to give a full reply within a reasonable time, HMRC should provide an interim response with information on the action they are taking. They should tell you when you can expect a full response.

Their full reply should include details of who you can contact if you feel the complaint is not dealt with in a proper manner.

If you prefer not to deal with the same people in the office you have been dealing with before, or have tried that and you are still unhappy, then you can ask for your complaint to be passed straight to a complaints handler. You can do this whether you are making your complaint in writing or by telephone.

What can I do if my complaint is not resolved to my satisfaction?

If you are unhappy with the response to your complaint, you can escalate your problem by once again addressing your letter as a complaint, but asking for the letter to be passed to a different complaints handler and for them to review the complaint again.
Again, you should expect a response within four weeks, after which time you should chase them if necessary. This is the final point of HMRC’s internal complaints procedure.

When do I go to the Adjudicator and the Ombudsman?

The Adjudicator

If you are still unhappy after the HMRC complaints procedure has reached its conclusion, you can ask the Adjudicator to look into your complaint.
The Adjudicator is independent of HMRC and tries to find solutions by mediation or by making formal recommendations. The Adjudicator is bound by the same policies and processes as HMRC and cannot look through them to decide whether they are fair or not. The Adjudicator will ensure that HMRC have followed their policies and processes correctly.

The Ombudsman

You may contact the Parliamentary and Health Service Ombudsman, who investigates cases where bad administration by any Government department has led to an injustice that has not been remedied.

The Ombudsman does not normally look at cases until they have been through the Adjudicator.

You cannot contact the Ombudsman directly. You must ask your MP to do this for you. The Ombudsman's office will apply its selection process to decide which cases to investigate.

The Ombudsman is entirely independent and can also consider complaints about the Adjudicators Office, but will not normally select a case for investigation if the Adjudicator appears to have taken account of everything relevant.

Do I have to pay my tax bill while HMRC are considering my complaint?

If you have an outstanding tax bill, we suggest that you pay the correct amount of tax you consider is due whilst HMRC are looking into your complaint.

If this proves to be less than the amount you actually need to pay, you may be charged interest on the amount paid late. Equally, if you pay too much and are due a repayment, HMRC will pay you the repayment and may also pay you interest on the overpaid tax from a set date.

If you decide to pay the whole amount while you go through the process, put it in writing that it is a ‘payment on account’. Not doing this may mean that HMRC refuse to consider HMRC error (ESC A19) on the basis that there is not an arrear or refuse to pay the amount back if your complaint successful.

How will HMRC resolve my complaint?

When you complain, HMRC will hopefully resolve your complaint to your satisfaction.

HMRC may:

  • say sorry and put things right;
  • explain what went wrong; and
  • consider refunding your reasonable costs and making a consolatory payment.

When you complain, you should ask for reimbursement of your expenses, for example, postage, phone calls and professional fees. You should also ask for compensation if you have been caused worry, distress or unreasonable delays.

What is Extra Statutory Concession A19?

If HMRC have not used information they had in their possession and are therefore late in asking you for money that is owed, they will not always seek the full amount that is due. For example, if you told them that you were now receiving a state pension, but they did not take any action to collect the tax due for two years, you may not have to pay the tax you owe.

This will only apply if you could reasonably have believed that you did not owe HMRC any more money. If you think this might apply to you then you should tell HMRC.

If you have any doubts, we suggest you read our guide on ESC A19, which covers the position in more detail.

Can I claim reimbursement of my costs?

Whilst your complaint is being sorted out you may be able to make a claim for costs you have incurred in trying to get things sorted out.

You can do this at any time while HMRC are looking at your complaint, or if you can tell them about your costs when you first make your complaint they may be able to process the claim quicker.

The person dealing with your complaint should be able to help you decide if you can make a claim. You may be asked for receipts or invoices to support your claim.

You cannot be compensated for your own time spent in sorting things out unless you can show that you have lost earnings as a direct result. You may however be able to reclaim the costs of a tax adviser.

Can I claim compensation for worry, distress or extra delay?

Mistakes and delays may cause you a great deal of worry or distress. HMRC say they realise how upsetting this can be. If you have suffered worry or distress, because of HMRC’s treatment of you, you should let them know. They may be able to pay you an amount to recognise your particular circumstances and so apologise for the way they have treated you.

HMRC do not intend for these payments to put a value on the distress you have suffered, but that does not mean that you should hold back from asking for substantial compensation where merited, for example if HMRC's actions have made you unwell.

You will not be able to claim compensation simply because of a difference of opinion between HMRC and you, even if HMRC are shown to have been wrong. You may be able to claim compensation, however, if HMRC took an unreasonable view of the law or failed you in some other way.

If HMRC handle your complaint badly, they may pay you a further sum. For example, if you sent them a reminder and there was a further delay in their response.

All such compensatory payments are tax-free and you need not declare them for tax purposes or show them on your tax return.

How do I claim back tax when I cash in a small pension?

Included in this section;

  • Trivial Commutations
  • Pension flexibility

Trivial commutations (cashing in your whole pension pot)

Rules which came into force on 6 April 2006 mean that if your total pension savings are very low, you can draw the whole lot out as cash. This is called ‘trivial commutation’. If the total of all your occupational and personal pension funds does not exceed a certain limit (£30,000 from 27th March 2014), then you may cash them in and collect them straightaway without having to buy an annuity (pension).

From April 2015 only defined benefit pension schemes (often known as final salary) will be able to make trivial commutation payments. The age limit also reduces to the normal minimum pension age currently 55. A payment is called ‘trivial’ if the value of all an individual’s pension ‘pots’ is below £30,000 and it is taken as a lump sum. An occupational pension scheme benefit worth £10,000 or less can also be taken as a small lump sum separately from the triviality rule above. In addition small pension pots, up to £10,000 can be taken as a lump sum regardless of the value of all the ‘pots’. You can do this for up to a maximum of three pension pots.

Of the total, you may receive 25% as a tax-free sum and the remainder is taxable at your top rate of tax (known as your marginal rate). This means that the taxable portion is added to your other taxable income. Incidentally, this 25% tax free amount only applies if you haven’t yet started to receive the pension. If you have then, unfortunately, the whole of the payment is taxable at your marginal rate.

Any amount taken in this way which is over the amount of tax free cash available, is taxed as normal income.

Since 2013 the taxable portion of the lump sum will be taxed at Basic Rate (BR). In many cases this will be correct and there will be no further tax due or tax to be repaid. For those of you, however, who started from a non-taxpayer position, i.e. other income below their personal allowances, there will be a need to ask for an immediate repayment using form P53, (available by calling HMRC, 0300 200 3300 or the online version at www.hmrc.gov.uk) since you will have lost out on the unused part of your allowances; whereas those who get pushed into a higher tax band by the addition of the lump sum may need to pay some extra tax.

Note – working out how much your pension funds are worth for this purpose may not be straightforward, especially if you have an occupational pension scheme, so speak to your pension provider or the Pensions Advisory Service.

Pension Flexibility From 6 April 2015

The Key Changes

The changes mainly affect people with defined contribution pensions, more commonly known as money purchase schemes. These include individual, group personal, stakeholder pensions, most additional voluntary contribution schemes (AVCs) and self-invested personal pensions (SIPPs). This means the changes apply to you if you have built up one or more ‘pots’ of cash or investments in pensions and you have to decide what you do with it. The changes mostly do NOT cover defined benefit schemes, often known as final salary pensions. These are pensions where the money you take from them is worked out based upon how much you earned with an employer and how long you were a scheme member. The rules of some pension schemes do not allow withdrawal of some sums, even though the tax rules now allow them. Pension providers have been permitted by law to override their own rules, but they do not have to do so. This means that your pension provider might refuse to do some of the things that the general pension rules allow. If you are unsure which type of pension you are paying into or want to know what you will be allowed to do, ask your scheme provider.

The main changes include:

  • Flexible access to pensions from the age of 55
  • Freedom in the way ‘tax free’ cash can be taken
  • Removing restrictions on ‘drawdown’ arrangements
  • Abolition of the 55% pension ‘death tax’

The Government has also guaranteed that everyone with a defined contribution pension will be offered free, impartial guidance. This aims to cover the range of options available, helping you to make sound decisions and get the most from your choices. This ‘Pension Wise’ service is available from:

  • The Pensions Advisory Service (TPAS)
  • Citizens Advice Bureau (CAB)
  • Pension Wise and the Money Advice Service (MAS)

Contact details are at the end of this section.

Flexible access to pensions from the age of 55

Up to now, most people who have saved in a pension scheme have then used the money to buy an annuity which gives a guaranteed income in the form of a pension. From April 2015, you have more options. You can decide how much and when you take money out of your pension (often called a ‘pension pot’). In theory and whilst the ‘pot’ lasts, you will be able to take out as much as you like, whenever you like. The three main choices available will be:

  • To withdraw all of the money in one go
  • Leave it in the scheme and take a regular or occasional income
  • Buy an annuity or enter into a ‘drawdown’ arrangement

Or

  • A combination of all three.

The tax implications of these options depend on your own personal circumstances. Taking benefits in any of the ways highlighted above will mean that future contributions to money purchase plans could be restricted. Essentially, they will be limited (with exceptions) to a maximum of £4,000 per year (£10,000 17/18). If you think that this might impact on your plans, we recommend that you seek independent financial advice.

Freedom in the way ‘tax free’ cash can be taken

Most people can already take up to 25% of their pension ‘pot’ as a tax free cash lump sum. From April 2015, how you choose to do this has changed. The options now are:

  • Take 25% of the pot tax free in one go, meaning any further withdrawals will be taxed as income;

Or

  • Take 25% of every cash withdrawal tax free, with the remaining 75% taxable as income.

Taxation in more detail

If your scheme provider allows, you can use your pension pot ‘like a bank account’ rather than buying an annuity. Under these new rules you have two options, you can:

  • take part of your fund
  • take all of your fund

But you will need to watch out as you could have to pay tax on what you take out – so it’s not as easy as when you take money out of a bank account! If you choose to take part of your fund, you will first decide whether you take 25% of the whole fund as a tax free amount or 25% of each withdrawal. Whichever you choose, any amount taken in excess of the 25% will be taxed under Pay As You Earn (PAYE). If you choose to take all of your fund, 25% will be tax free and the remaining amount will be taxed under PAYE. In most cases these payments will be taxed without consideration to any other income you may have during the tax year. This will mean that you could pay too much tax (an ‘overpayment’) or not enough tax (an ‘underpayment’) by the end of the tax year.

How your pension payment is taxed

Tax is taken using the PAYE system. If you are or have been an employee, you may recognise this as similar to the way your employer took tax off your wages or salary.

How your pension payment is taxed depends on whether:

  • you decide to take part or all of your fund
  • you have other PAYE income and
  • you receive the State Pension.

As above, only part of your pension payment might be taxable, depending on how you choose to use your tax free cash sum. The following comments apply only to the part of the sum that is to be taxed. The pension provider uses a PAYE code number, but this is worked out on an ‘emergency’ or ‘month1/week1’ basis (see below for more detail on this); unless you give them an ‘in year’ P45. If you have stopped work you will get a P45 from your previous employer. It will show how much you have earned and how much tax you have paid since 6 April, and what code number your employer has been using. You might also get one from another pension provider, if you have taken everything out of a single pension pot. If you give your pension provider a P45, they should use the code number from it.

Getting your tax back

The system differs depending on whether you have;

  • Taken all of your money out of a pension pot
  • Taken part of your money out of a pension

If you take all of your money out of a pension pot

If you pay your tax under PAYE you can claim the overpaid amount back during the tax year. Your scheme provider should provide you with a P45 showing details of the payment. You may have to send this form to HMRC when you claim a repayment.

If you have no other income or just receive your State Pension, use form P50Z.

If you have other PAYE income, use form P53Z. You can either telephone HMRC for the forms (telephone number given at the bottom of this section), or search www.GOV.UK for P50Z, P53Z.

This ability to claim back tax during the tax year applies if you have taken everything out of a pension pot. For instance, you had £20,000 with XYZ Mutual and have taken all of the money and tax has been taken under PAYE. There is nothing left with XYZ Mutual (though you might still have another pension pot – say, £10,000 with ABC Investments – that you have not touched; that does not matter).

If you do not send in a claim during the tax year, HMRC should look at all of your PAYE records after the end of the tax year. Where there has been a tax overpayment of any amount or an underpayment of at least £50, HMRC will send you a ‘P800’ calculation. This should pick up on overpayments that haven’t been claimed within the tax year. But if the system fails, you may not hear from HMRC or you may get a P800 calculation that is incorrect, so you need to try to understand your situation for yourself.

If you usually complete a self-assessment tax return, you will have to wait until the end of the year to balance your account.

If you have taken only part of your money out of a pension pot

Tax overpayments and underpayments will be dealt with under the normal PAYE rules. This means that you will not be able to claim back tax during the tax year if you have not taken everything out of a pension pot.

So let’s say you had two pension pots, one of £20,000 and the other of £10,000. You have taken out £5,000 from the first, so there is still £15,000 left in it. Although your pension provider will take some tax under PAYE and tell HMRC about the payment and tax deduction, they will not issue a P45 as you still have money left in the pot. HMRC should issue a code number to the pension provider in case you take any more payments from it during the tax year (in which case the PAYE system might give you a refund of earlier tax paid), but normally you will have to wait until after the end of the tax year to get back any overpayment.

There is an exception to the above which applies if you only intend to take a single part payment in a tax year. In that instance you can reclaim any overpaid tax during the year using form P55.

As above, if you haven’t made a claim during the tax year HMRC should look at all of your PAYE records after the end of the tax year. Where there has been a tax overpayment of any amount or an underpayment of at least £50, HMRC will send you a ‘P800’ calculation. This should pick up on overpayments that haven’t been claimed within the tax year. But once again if the system fails, you may not hear from HMRC or you may get a P800 calculation that is incorrect, so you need to try to understand your situation for yourself.

If you usually complete a self-assessment tax return, you will have to wait until the end of the year to balance your account.

Pension Wise

www.pensionwise.gov.uk

The Government’s guidance service. Visit the website for general information on taking money out of a defined contribution pension.

T: 030 0330 1001

For a telephone or face to face appointment, between 8am and 10pm, Monday to Sunday. Calls cost the same as a normal call - if your calls are free, it’s included.

The Pension Advisory Service

www.pensionsadvisoryservice.org.uk

T: 0300 123 1047

For other pensions help, particularly with defined benefits pensions.

Money Advice Service

www.moneyadviceservice.org.uk

Free and impartial money advice, set up by government

T: 0800 138 7777

Monday to Friday, 8am to 8pm Saturday, 9am to 1pm

How do I claim back tax if I am in self assessment?

If you are in self assessment and you overpay tax, you do not need to submit a separate claim for repayment. You claim your tax repayment through your self assessment tax return.

How do tax repayments through self assessment generally work?

If you overpay tax on your income and you complete a self assessment tax return, HMRC will deal with your repayment once they have processed your tax return.

You can state in the tax return how you would like the repayment to be paid to you. You can have it:

  • paid directly into your bank account,
  • paid to you by cheque, or
  • deducted from your next self assessment tax liability, for example, against the next tax year’s ‘payment on account’ if you are due to make one.

Alternatively, if you owe HMRC another amount, for example, a tax credits overpayment, you might ask them to ‘offset’ the repayment against that amount. This means they will take the amount you are due to be repaid off the other amount you owe. They will then repay any remaining repayment or you will have to pay the rest if you still owe some.

You complete your tax return after the end of the tax year. The sooner you submit your tax return, the sooner you will receive your repayment, or offset. If you submit your tax return online rather than on paper, it might be dealt with sooner and you will get your repayment faster (we can help you get online to complete your tax return, click HERE to find out more). HMRC sometimes also want to check some things before sending your repayment, as part of their aims to prevent unscrupulous people claiming tax back fraudulently. If you have been waiting several weeks to hear back from HMRC about your refund, we suggest you telephone them to find out what is happening.

How do I claim a refund if I made a mistake on my tax return?

Sometimes you may make a mistake on your tax return and pay too much tax.

In this situation, you need to amend or correct your tax return first. Once HMRC have processed the amended tax return, they will send you any repayment due or offset it against other amounts that you owe.

There are time limits for correcting your tax return. The normal limit is 12 months from the 31 January after the end of the tax year. For example, the normal deadline for amending your 2016/17 tax return is 31 January 2019 and a 2017/18 tax return is 31 January 2020.

How do I claim a refund if it is too late to amend my tax return?

If you made a mistake in your tax return, and paid too much tax, but only realise after the deadline for amending the tax return has passed, you may still be able to claim a repayment of overpaid tax.

In this situation you will need to write to HMRC and tell them about your mistake. You can write to HMRC using the postal address on the most recent correspondence you have from them, or to
HM Revenue & Customs
Pay As You Earn
BX9 1AS

Your letter, should:

  • give your full personal details – your name, address, national insurance number and unique taxpayer reference (‘UTR’);
  • refer to the tax year to which the repayment relates;
  • include as much information as possible about why you think you have paid too much tax and the mistake you made;
  • enclose evidence of the tax that you have paid, including copies of P60s and P45s if you have them – keep the originals;
  • say how you would like to receive any repayment – you can have it paid directly into your bank account, paid by cheque, or deducted from your next self assessment tax liability;
  • be signed and dated in ink.

Keep a copy of your letter and any enclosures and ask the Post Office for a proof of posting in case of later query.

How do I claim back tax I have overpaid through PAYE on wages or pensions?

This section looks at what to do if you have paid too much tax on your wages or pension and what the time limits are for making a claim.

First though, we look briefly at HMRC’s P800 tax calculation process, which may mean you do not need to claim a repayment, as HMRC will issue any repayment automatically. If you have not received a P800 tax calculation from HMRC, and you have overpaid tax, you will need to make a claim for a tax repayment.

What is a P800 tax calculation?

Your employer or pension provider gives HM Revenue & Customs (‘HMRC’) details of how much income you have received, how much tax you have paid and the value of any benefits in kind you have received during the tax year.

Using this information, HMRC carry out an automatic reconciliation at the end of each tax year, to work out whether or not you have paid the right amount of tax. If HMRC think you have not paid the right amount of tax, they send you a P800 tax calculation. This calculation will show you what tax HMRC think you should have paid.

You must always check your P800 tax calculation carefully, as HMRC may not have all the information they need to calculate your tax correctly, or they may have inaccurate information.

If HMRC think you have overpaid tax, they will send you a repayment of tax automatically – you do not need to make a claim.

If HMRC think you have not paid enough tax, they will write to you explaining that they intend to collect the underpaid tax through your tax code or telling you how you can repay it to them.

For more information on what to do if you receive a P800 tax calculation, please read our section ‘When things go wrong’, ‘Complaint or Appeal’

How do I claim a refund for the current tax year?

If you receive employment income or pension income and pay tax through the PAYE system you may sometimes pay too much tax. There are various reasons for this. HMRC provide a list of typical reasons for an overpayment of income tax arising on employment income. They also provide a list of reasons why an overpayment might arise on pension income.

If you think you have overpaid tax through PAYE in the current tax year, before the end of the tax year tell HMRC why you think you have paid too much. It is probably best to telephone them initially, the helpline for individuals and employees is 0300 200 3300.

Before you telephone HMRC, you will need to gather together:

  • your personal details – such as your full name, address, date of birth and National Insurance number;
  • details of each of your employers or pension providers – their PAYE scheme reference number, which should be shown on your payslip, or ask your employer or pension provider for it;
  • estimates of your earnings and pensions from each source for the current tax year.

Make sure you keep a note, in a safe place for future reference, of:

  • the date and time of the phone call;
  • the name of the adviser you spoke to; and
  • what was said by both you and the HMRC adviser.

You may need to send in more information to support your claim and if so HMRC will let you know what paperwork you should supply.

Once HMRC process your claim it might be necessary to issue you with a new tax code, meaning any refund will be added to your wages or pension and the amount will generally be paid automatically through the payroll. This will result in a lower tax deduction or a tax refund through PAYE.

However if the repayment is due towards the end of the tax year and you have already received your final pay for that year, you may have to claim a refund directly from HMRC.

How do I claim a refund if I have stopped working part way through the tax year?

If you have stopped work part way through the tax year and are not going to have a continuing source of taxable income, for example, you are not intending to go back to work within four weeks or claiming a state benefit, you should be able to claim an in-year tax repayment using form P50.

You must send parts 2 and 3 of your P45 together with form P50 to HMRC. If you are entitled to a repayment of income tax, HMRC will send it to you – usually by cheque in the post.

You cannot use form P50 if you are claiming, or intending to claim a state benefit such as jobseeker’s allowance (‘JSA’).

If, for example, you stop work in June, having been employed at some point since the beginning of the tax year on 6 April, and you do not get another job but start to claim JSA, you will need to let Jobcentre Plus have your form P45 from that paid work. They will then put the details onto their computer. If you have already paid some tax under PAYE in the year, you will not get this refunded until the earlier of:

  • ceasing to claim JSA – in which case your refund comes from Jobcentre Plus;
  • the end of the tax year – in which case, you have to liaise direct with HMRC for your refund.

How do I claim a refund after the end of the tax year and for previous tax years?

If you have paid too much tax through your employment and the end of the tax year in which you overpaid tax has already passed you can make a claim for a refund by writing to HMRC.

Mark the top of your letter clearly with ‘repayment claim’ so that HMRC prioritise it on receipt.

You can write to HMRC using the tax office address of your current employer or the postal address on the most recent correspondence you have from HMRC. If you do not have any recent documents or letters from HMRC, write to:

HM Revenue & Customs
Pay As You Earn and SA
BX9 1AS

Generally your letter, should include:

  • give your full personal details – your name, address and national insurance number;
  • include as much information as possible about your employment history, for example, PAYE reference numbers for your employers, dates of employment, how much you earned and how much tax was deducted;
  • enclose copies of P60s and P45s if you have them – keep the originals;
  • say why you think you are due a repayment;
  • be signed and dated in ink.

Keep a copy of your letter and any enclosures and ask the Post Office for a proof of posting in case of later query.

HMRC say they usually aim to process PAYE repayments within four weeks of receipt. In some cases, HMRC will need to carry out security checks. It might help to speed up the repayment if you ask HMRC to pay it direct to your bank account. To request a direct bank transfer, include in the letter:

  • the name of the account holder(s);
  • the sort code; and
  • the account number.

But be aware that HMRC might want to make additional security checks if you request repayment into an account which is not in your own name.

In most cases you can get back the tax you have overpaid as long as you claim on time. The time limits for claiming a refund are shown in the section below. If you fail to make a claim within the time limit you will miss out on any refund due.

What can I do if I am too late to make a claim for a repayment?

Claiming back tax for 'closed' tax years - Extra-statutory Concession B41

If you think you have overpaid tax in tax years that are ‘closed’ to reclaims, there is a rule known as Extra-statutory Concession B41 which can allow HMRC to repay tax for those earlier years. This only applies in limited circumstances.

This concession only applies in situations where HMRC or another government department, such as the Department for Work and Pensions, have made an error in your tax affairs and where there is no doubt about the facts of the case.

The relevant part of the concession reads as follows:

‘....However, repayments of tax will be made in respect of claims made outside the statutory time limit where an over-payment of tax has arisen because of an error by HMRC or another Government Department, and where there is no dispute or doubt as to the facts.....'

In our experience, it is rare for HMRC to grant this concession so you will need to set out clear evidence as to what the error was, which resulted in you paying too much tax.

It’s HMRC’s fault that I’ve underpaid tax, what now?

Extra-Statutory Concession A19 - 2017/18 and earlier

If HMRC have delayed using information in their possession, and this results in you paying too little tax, HMRC will sometimes write off the arrears of tax under Extra-Statutory Concession (ESC) A19. This guidance is to help you consider whether you can challenge HMRC under this policy.

1. What is ESC A19?

Extra-Statutory Concession A19 is a practice developed by the former Inland Revenue (now HMRC) to cover situations where an error or administrative failure of theirs resulted in someone paying too little income tax or capital gains tax.

Devised to ensure fairness for taxpayers where the strict law says that they owe tax but it would be unfair to pursue payment, its use can alleviate worry and concern for vulnerable taxpayers presented with large, unexpected demands for arrears of tax.

The concession provides for tax to be written off (that is, not collected) in certain circumstances. It has a factual element and a subjective element.

It is generally easy enough to work out whether the purely factual conditions are satisfied. Arrears of tax must have arisen because HMRC have delayed in using information about you which they have had in their possession, and the arrears must usually be at least one year old. Sometimes, the concession can be used to write off arrears which are less than a year old where HMRC’s failure to make use of information has been persistent.

HMRC have agreed to treat P14 information from employers as relevant for the purposes of the 2012/13 tax year onwards, though they did not treat it as such for earlier years.

The subjective element is less easy to satisfy: whether HMRC write off the tax depends on whether they think it was reasonable for you to have believed your tax affairs were in order (see heading 3 below).

You can ask for collection to be suspended while you await the outcome of an investigation.

2. Some examples of situations which may give rise to tax being written off

So when might you be justified in asking for your tax to be written off under ESC A19?

First, bear in mind that A19 usually only applies to underpayments for tax years ending more than 12 months ago - for example, you cannot normally use ESC A19 to ask for tax owing for 2017/18 to be written off if HMRC are advising you of the underpayment in, say, June 2018.

However, if HMRC have persistently got something wrong year after year, we would expect them to consider writing the tax off for all years up to and including 2017/18 unless they corrected the error before the end of the 2017/18 tax year. So if you underpaid tax in earlier tax years, and an underpayment in 2017/18 again occurred for the same reasons, A19 might apply. It might help to ask yourself:

  • Did HMRC have all the information they needed to get your tax right in the past? HMRC should have received details of taxable state benefits from the Department for Work and Pensions (DWP) and pay and pension details from employers/pension payers.
  • You might have provided HMRC directly with information that they have failed to use – by personal visit to an Enquiry Centre, by letter or telephone call.
  • Particularly where you have various sources of income, HMRC should send you a ‘P2’ Notice of Coding each year (prior to 2016/17 one for each source) – did you receive them?
  • Perhaps you contacted HMRC about your tax codes and they failed to act on the information you provided or told you everything was correct?
  • Prior to 2012/13, When you reached state pension age, or shortly before, did HMRC send you a form P161 asking for details of your income in retirement so they could work out your codings? If they did, did you fill it in and return it; and did HMRC then fail to act on that information?

3. The ‘reasonable belief’ test

For ESC A19 to apply, it must have been reasonable for you to have believed that your tax affairs were in order. The question is not whether you did in fact believe that your affairs were in order, but whether it was reasonable for you to believe they were.
Importantly, this ‘reasonable belief’ test should be applied by looking at you as an individual. HMRC’s internal guidance requires their officers to consider the following factors when applying the reasonableness test:

  • The size of the arrears and what caused them
  • What information HMRC has sent the taxpayer over the years, such as coding notices, explanatory leaflets, etc
  • Whether HMRC has given the taxpayer wrong or misleading advice
  • Whether HMRC’s actions have muddled the case or made it hard to follow (for example, issuing multiple or incorrect coding notices)
  • Whether the taxpayer has been professionally represented (in which case it may be harder to argue that they reasonably thought their affairs were in order)
  • Reasonable belief may change over time (ie it may be reasonable for a taxpayer to think their affairs in order in one year, but if circumstances change the question may have to be considered again)
  • The taxpayer’s likely level of understanding of tax, taking into account factors such as the taxpayer’s background, age, state of health, etc.

The Manual instructions conclude: ‘if the issue is so finely balanced that it is hard to form a judgement, always give the taxpayer the benefit of the doubt’.

So what factors should be considered? Drawing on the criteria set out in the HMRC official manual, some examples are:

  • If you are a pensioner and have been employed all your working life, with PAYE taking care of your tax, it is perhaps reasonable that you should not have understood all that might go wrong with your taxes on retirement, or failed to identify errors in your tax across multiple sources of income.
  • You might have received numerous tax coding notices which you found incomprehensible or no coding notices at all.
  • In recent years, the information HMRC provide with coding notices has dwindled, so you may have had difficulty checking them.
  • Your age, state of health, other problems in your life (such as a bereavement, or ill-health of a close family member), educational background, literacy and numeracy skills, and disability all might have had an impact on your ability to cope with tax matters.

What should you do?

If you think your situation fits in with the concession, make contact with HMRC as soon as possible – their telephone number and address will be given on the notes accompanying  the tax calculation you have received. If you can't find it, here it is 0300 200 3300.

If you think they have made mistakes and you have evidence to support that, set out the details in your letter or when you telephone. Whenever you contact HMRC, keep a record (that is, keep a note of the date and time of telephone calls, to whom you spoke and what was said; and keep copies of any letters and documentation sent to HMRC with proof of postage).

Make sure you mark your letter as claiming ESC A19 – we have provided an example letter in the appendix below to give you an idea of what to write, subject to tailoring it to your own circumstances as appropriate.

We also suggest you make it clear when you contact HMRC that you wish them to suspend any action to collect the tax they say you owe while they review your case.

5. What happens next? And information about your rights

HMRC will, in due course, come back to you with their decision. There are several possibilities here:

  • They might have investigated your case and considered that your employer or pension payer is at fault and they should seek to recover all or part of the tax from them. HMRC’s guidance (see appendix below) says that they should consider this point as part of their ESC A19 review. At this point you should read our guide to Employer or pension payer error.
  • They might decline A19 treatment.
  • They might decide to allow A19 in part and write off part of the tax.
  • They might allow A19 treatment in full and write off all of the tax. If they do agree to write off the tax, check your PAYE coding notices to ensure that HMRC have not still included it for collection.

If they decline A19 or only allow it in part, you do have other options to get your case reviewed further. First, you can submit a formal complaint asking to have your case reviewed again, giving details of why you feel you have received inadequate help and care from HMRC.

Do not succumb to temptation to pay off any PAYE arrears before your A19 application has been considered. The reason is that if you clear the arrears, HMRC will claim that there are no longer any arrears in respect of which ESC A19 can apply, and refuse to consider the concession. If you do decide to pay something towards the arrears, make sure HMRC know that it is a ‘payment on account’ and made without prejudice to your A19 claim. We suggest you do this in writing.

Read our ‘How to complain’ guide on the ‘When things go wrong’ section of this website. This explains more about how to complain to HMRC and onwards to the Adjudicator and Ombudsman if you are still not satisfied.

The only route to the courts in A19 cases is to seek what is called a ‘Judicial Review’, but unfortunately this is beyond the means of most ordinary taxpayers, particularly as it carries with it the downside of HMRC potentially seeking to recover their costs from you should your case fail. If you do wish to consider this route, you would need to take advice and act quickly as there are strict time limits to request the review which apply from the date of HMRC’s decision.

APPENDIX

Extra-statutory Concession A19 - The full text of the concession is as follows:

A19. Giving up tax where there are Revenue delays in using information

Arrears of income tax or capital gains tax may be given up if they result from HMRC’s failure to make proper and timely use of information supplied by:

  • a taxpayer about his or her own income, gains or personal circumstances
  • an employer, where the information affects a taxpayer's coding; or
  • the Department for Work and Pensions, about a taxpayer's State retirement, disability or widow's pension.

Tax will normally be given up only where the taxpayer:

  • could reasonably have believed that his or her tax affairs were in order, and
  • was notified of the arrears more than 12 months after the end of the tax year in which HMRC received the information indicating that more tax was due, or

In exceptional circumstances arrears of tax notified 12 months or less after the end of the relevant tax year may be given up if HMRC:

  • failed more than once to make proper use of the facts they had been given about one source of income
  • allowed the arrears to build up over two whole tax years in succession by failing to make proper and timely use of information they had been given.

HMRC Guidance

HMRC’s guidance to customers on their website: https://www.gov.uk/hmrc-did-not-act
HMRC’s internal staff guidance can be found in their procedural manuals. It is too long to reproduce here, but if you wish to read it all, you can find it on their website: http://www.hmrc.gov.uk/manuals/pommanual/paye95000.htm

What checks should I carry out on my tax code?

Although the system sounds pretty simple, things can go wrong so it is very important that you check:

  • your PAYE coding notice
  • that HMRC have used information about you correctly in working out your tax code
  • that your employer or pension provider is using the correct tax code for you (see example coding notice below).

This guide aims to help you to do just that, however if you are concerned, always contact HMRC. You can also view your own tax information online, including your tax code, on the HMRC website. For more information on this, click here.

Example of a pensions coding notice

 

 What makes up a tax code?

Allowances

Most people who pay tax in the UK are entitled to personal allowances. These are the starting point for most tax codes. If you have no other income, you can have earnings or pensions up to the amount of your personal allowance without owing any tax.

There may be other amounts to add to your personal allowances to increase the amount you can earn before paying tax (your 'tax free amount') and therefore reduce the tax you have to pay. For example, there may be an amount to be added for certain job expenses (such as using your own car for business), perhaps blind person's allowance, marriage allowance or flat rate expenses for say, uniform cleaning or professional subscriptions.

Reductions

There may be some items in your tax code that reduce your tax free amount. For example:

  • if you receive a state pension. The state pension is taxable but the Department for Work and Pensions, who pay it, do not operate the PAYE system. The tax due is therefore collected by reducing your tax free amount by the amount of state pension you are entitled to for the year
  •  if you are employed and your employer provides you with benefits, such as private medical insurance or a company car, the value of those benefits is taken off your tax free amount
  •  if you owe tax for an earlier tax year your tax free amount may be reduced so you that you pay it back.
  • if you receive income that is not possible to tax before you receive it, your tax free amount will be reduced by an estimate of that income. For example, if you rent out a property, HMRC might reduce your tax free amount by an estimate of your rental income, or if you receive savings income (paid without tax being taken off from April 2016) not covered by the 0% savings rate or by the personal savings allowance, or perhaps receive dividends over the £2,000 allowance (£5,000 16/17 & 17/18), HMRC will reduce your tax free amount by an amount of  the estimated income.

What does the number in your tax code show?

Your tax free amount, reduced as necessary, is turned into a tax code.

HMRC divide the tax free amount by ten and then add on a letter. For example, in 2018/19, someone whose tax free amount is just the personal allowance of £11,850 will have a tax code of 1,185L.

See ‘K codes’ below to find out what happens when the reductions to your tax free amount are more than your personal allowances.

Letters in tax codes

The letters used in tax codes often will not mean much to you. Most are there for HMRC or your employer or pension provider to refer to.

Personal allowances and tax rates may change. Rather than issue new tax codes to millions of people, HMRC will tell employers and pension providers to simply increase by a certain amount all codes ending in, for example, the letter L.

These are the letters used in tax codes:

  • L         standard tax-free personal allowance
  • T         your code will not change until it has been reviewed by HMRC
  • M         you have received 10% of your spouse’s personal allowance
  • N        you have donated 10% of your personal allowance to your spouse
  • BR      no surplus allowance and income from this source will be taxed at the basic 20% rate
  • 0T      As BR, but tax will be taken at 40% and 45% if the income enters those tax bands
  • X         HMRC will review the tax paid at the end of the tax year
  • K         indicates a negative amount of tax free allowance and that tax has to be paid on this amount
  • NT       you will not pay tax on this income
  • DO     tax will be deducted at 40%
  • S         you are resident in Scotland

Note - Scotland has some new codes to accommodate the new tax rates - SBR 20%, SDO 21%, SD1 41%  and SD2 46%

Special tax codes

K codes

Items that reduce your tax free allowances can add up to more than those allowances, resulting in minus allowances. When this happens, these minus allowances are treated as extra income on which tax is due and a special code number, beginning with the letter K, is used.

If you divide the minus allowances by ten, then take off one, you will get the K tax code. For example, if you have minus allowances of £2,970, your tax code will be K296.

Although K codes are designed to collect extra tax, if you have a K code, your tax deduction for each pay period cannot be more than half of that pay or pension. For instance, if your pay for the week is £300, a K code cannot result in more than £150 being deducted from you in that week.

Code BR

Code BR stands for basic rate (in 2018/19, 20%) and is usually used for a second employment or pension where there is no tax free amount available to reduce your tax deductions. It is different from code 0T. With code BR, tax will only be deducted at basic rate at this job or pension, no matter how much you are paid. But where code 0T is used, tax at the higher and additional rates can be deducted once your income goes over a certain amount.

Code D0

This code is used if all income from this employment or pension is expected to be taxable at 40% (the higher rate). There will usually be another employment or pension where your tax free allowances are given and where at least some of your tax will be deducted at 40%.

Emergency tax codes

When you start a new employment or pension your employer /pension provider will follow the PAYE procedures to issue you a tax code which will be operated until HMRC issue the correct code.

This is a complicated process and one that continually fails. It is important that you check that the proper tax code has been issued by HMRC and is operated. Never assume that the initial code is correct.

Who gets PAYE coding notices?

Although millions of people pay their tax under the PAYE system, not everyone needs a tax code notification each year.

If, for example, your tax free amount is just the basic personal allowance then you may only have received one PAYE coding notice – when you first started work. This is because if the amount of the basic personal allowance changes each year, HMRC and your employer can update your tax code automatically by reference to the code letter ‘L’, without HMRC needing to contact you.

Tax can become more difficult in retirement and most pensioners have several sources of income. They also receive the taxable state pension which isn't taxed at source. Pensioners’ personal allowances may change as their income changes so they do tend to get PAYE coding notices each year - usually in February for the tax year starting on the next 6 April.  If you do not receive one contact HMRC on 0300 200 3300 to ask for a copy.

People whose tax codes are reduced to take account of:

  • untaxed income, such as rents or certain savings income
  • underpaid tax from earlier years
  • employment-related benefits such as company cars or medical insurance

are sent a PAYE coding notice each year. These notices are usually sent in January for the tax year starting on the next 6 April.

Employees and pensioners who have to complete tax returns will also be sent annual PAYE coding notices (click on each to see an annotated example of how to check your coding notice).

Your circumstances can change during the tax year so your tax code can be amended at any time and a new PAYE coding notice sent to you. Keep all your coding notices to check that HMRC have calculated your tax code correctly and that your employer or pension provider is using the correct tax code for you.

Checking your PAYE coding notice

HMRC  re designed the coding notice in 2015 and they now include all of your sources of income on one document. This much easier to read but you still need to check that the information is correct.

PAYE codes are generally notified to employees by a paper 'coding notice' sent through the post. But if you fill in a tax return each year and are registered for Self Assessment Online, or you have a personal tax account you can also view your PAYE Codes online. Before you can use this service, you must have registered for HMRC Online Services and enrolled for Self Assessment Online.
Each PAYE coding notice can be split into roughly four sections for checking:

  1. personal and contact information
  2. confirmation of the tax year and new tax code, and the name of the employer or pension provider who will be using that code
  3. how HMRC have calculated your tax code
  4. notes explaining each item in the tax code calculation.

Personal information

This first section will contain: your title (Mr, Mrs, Dr, Sir etc), your name and address, your national insurance number, the date of issue of the notice and the tax year to which it relates.

How HMRC have calculated your tax code

In the next section called 'This is how we worked out your tax code'  HMRC will first set out your personal allowances and anything else that increases your tax free amount, such as job expenses or the marriage, married couple's and blind person's allowance. These items are then added up giving the 'total' allowances.

Then, anything that reduces your tax free amount, such as the state pension, a reduction to collect unpaid tax or an estimate of untaxed interest or an underpayment for a previous year is then taken off leaving your 'total tax free amount'.

This 'total tax free amount'  is then set against your income sources until it is used up. The tax code is then shown to the right hand side of the notice, calculated as below;

This leaves you with a 'total tax free amount' which, if positive, is divided by ten and a letter is added at the end to give you your tax code. For example, a tax free amount of £4,921 becomes tax code 492L.

If the result is negative (you have a minus tax free amount) it is divided by ten, a figure of one is taken away and a K is put before the result to give you your tax code. For example, a minus tax free amount of £2,970 becomes tax code K296.

Once the 'total tax free amount' is used up subsequent sources of income will be taxed at BR (basic rate taxpayers)

If you think anything in your tax code is wrong, contact HMRC as soon as possible on 0300 200 3300. Do not expect your employer or pension provider to do this for you, they only act on HMRC instructions.

Notes explaining each item in the tax code calculation

A note will be provided for every item in the tax code calculation. These notes are intended to help you to check your tax code but the way the tax rules work means this is not always straightforward.

Gift Aid - Age Related Allowances (up to 2015/16)

If you were born before 6 April 1938 and your income is more than £27,700, 2015/16, Gift Aid payments reduce your total income for the purposes of calculating your age-related personal allowance, meaning you pay less tax. This means that an 'estimated income' figure on your coding notice should have been calculated deducting Gift Aid payments.

There is a snag. As Gift Aid payments are treated as paid after basic rate tax (20% for 2015/16), they need to be what is called ‘grossed up’ before they are deducted. So you take the amount you paid, multiply it by 100 and divide it by 80 – meaning for every £80 you pay in Gift Aid, you get a £100 deduction from your income in the age-related personal allowance calculation.

This section does not apply from 6 April 2016.

Unpaid tax

If you have a ‘reduction to collect unpaid tax’ item in your code number, your coding notice will show the actual amount of unpaid tax. HMRC ’gross up’ that figure (multiplying by 100 and dividing by 20, if you pay tax at basic rate) and reduce your tax free amount by the result, so you pay extra tax on the grossed up figure.

For example, if you owe £47 for the 2018/19 tax year, the calculation box on the 2018/19 PAYE coding notice would look like this:
This is how we worked out your tax code(s)

Your personal allowance (after increases) £11,850 Go to note 1
Adjustment to collect unpaid tax (£47) £235 Go to note 3
Total  tax free amount £11,615

The extra tax that you will pay at 20% because of having £235 fewer personal allowances will collect the £47 unpaid tax (235 x 20% = 47).

Married couple’s allowance

If you have married couple’s allowance in your coding an adjustment has to be made because your tax free amount reduces the tax you pay at 20%, whereas the law says that tax relief for married couple’s allowance is to be given at 10%.

For example, if you are a married man, born before 6 April 1935, your tax relief for married couple’s allowance will be £8,695 at 10% = £869.50.

But the calculation box in your coding notice would look like this

This is how we worked out your tax code(s)

Your personal allowance £11,850 Go to note 1
Married couple’s allowance  (add)    £4,348 Go to note 3
Less state pension £7,865 Go to note 3
Total tax free amount £8,333

Having £4,348 in your coding reduces the tax you pay, at 20%, by £869.50. This is the same result as £8,695 at 10%.

Marriage allowance

If you are in receipt of the marriage allowance from your spouse your personal allowance will be increased by £1,185, 2018/19. Their personal allowance will be reduced by the same amount.

The calculation box in your coding notice would look like this

This is how we worked out your tax code(s)

Your personal allowance £11,850 Go to note 1
Marriage allowance  (add)    £1,185 Go to note 3
Less state pension £7,865 Go to note 3
Total tax free amount £5,170

Tax free pay and tax rates

The final note on the coding notice tells you:

  • the amount you can earn or the pension payment you can receive each month or week before you start to pay tax
  • the maximum amount of income that can be taxed at 20%
  • when higher or additional rates of tax would start to be charged.

 

What is PAYE and how does it work?

Employees and pensioners have tax deducted under Pay As You Earn by means of what are called ‘PAYE codes’. You should check your code number and what tax is being taken off your income and query it with HMRC if you do not understand or think it might be wrong. We have some simple instructions for you to check your coding notice from HMRC for employees here and pensioners here.

PAYE stands for Pay As You Earn. It is the system for collecting tax from your earnings or pensions during the tax year. The tax year begins on 6 April in the year and ends on 5 April in the following year.

PAYE is a three-party process, involving HM Revenue and Customs (HMRC), your employer or pension provider and you. Each has a role in its operation.

In most cases the tax due from you can be taken off your pay or pension under the Pay As You Earn (PAYE) system. How often tax is taken off depends on how often you are paid – usually weekly or monthly for employees and most pensioners, but some pensions might only be paid quarterly or annually.

How PAYE works – the basics

HMRC will:

  •  calculate a tax code for you
  •  send you a PAYE coding notice (a form ‘P2’), if they are required to do so, showing you how they have worked out your tax codes. For cases where HMRC are not obliged to issue a coding notice you can still ask them for one
  • tell your employer or pension provider what your tax code is (but not how it has been worked out).

Your employer or pension provider then uses that tax code to work out how much tax to take off your weekly or monthly pay or pension. They regularly pay over that tax (and National Insurance contributions, if appropriate) to HMRC. You can view your tax code and how it has been calculated on the HMRC website through your Personal Tax Account.

Employers and Pension providers have procedures for running PAYE that allow them to use a tax code when paying you. It is important to check that your employer/pension provider has informed HMRC of your income. When new incomes start you should expect to see an updated coding notice from HMRC. If this doesn’t happen we suggest you contact HMRC and ask for one.

It is important to check that the tax codes HMRC have issued are being operated by your employer or pension provider. It can become more confusing in retirement as pensioners often have multiple sources of income including the taxable state pension that is paid gross. It is worth checking that the tax codes issued to you actually take the correct amount of tax. You can contact HMRC, Tax Help for Older People or if you have a 'personal tax account' you can view your tax codes there. To access your 'personal tax account' go to www.gov.uk/personal- tax-account and follow the prompts. Using Government Gateway is the easiest way to access your account but if you want someone else to manage your affairs via 'Trusted Helper' you need to follow the 'Verify' route.

Payslips

If you are employed you will be given a payslip each time you are paid. It may show the tax code your employer used to work out the tax to deduct from your gross pay.

If you are getting a pension, you generally do not get a payslip with each pension payment. However, you should get some form of notification if there is any change to the pension payment if, for instance, your tax code changes.

If you are unsure what code is being operated by your employer/pension provider call and ask.

The tax year end

So long as you are employed or receiving a pension at 5 April, the end of the tax year and pay tax, your employer or pension provider will give you an ‘end of year certificate’ (form P60 or its equivalent) by 31 May. This will show your pay or pension and the tax deducted and usually the final tax code operated. Your employer or pension provider will give the same information to HMRC.

What tax rates apply to me?

Under the UK tax system, generally your earnings or non-savings income is treated as being taxed first, then your savings income and then your dividends.

You can find the current and recent years’ tax rates and bands’ in the next section 'Rates and bands in table format'

What tax rates apply to my earnings or non-savings income?

Earnings or non-savings income includes wages, pensions, taxable state benefits, profits from self-employment and rental income. This is not a complete list. Separately, we provide more information on what income is taxable.

You have to pay income tax on your taxable earned income that exceeds your tax allowances. You are also allowed to deduct any allowable expenses that you have incurred.

You pay income tax at the basic rate of 20% on your taxable earned income that falls within the basic rate band. The basic rate band for 2018/19 is £34,500 (£31,580 in Scotland).

If you have taxable earned income that exceeds the basic rate limit, you will have to pay more tax. This is firstly charged at the higher rate of 40% on the income above the basic rate limit. This means that in 2018/19 you will pay tax at the rate of 40% on taxable earned income above the limit of £34,500 (£31,580 in Scotland).

If your taxable earned income exceeds the higher rate band limit, you will have to pay tax at the additional rate of 45% on the income above the limit. The higher rate band limit is £150,000 for 2018/19.

What tax rates apply to my savings income?

As your taxable savings income is taxed after your earned income, the tax rates that apply to your savings income depend on how much earned or other non-savings income, such as rents, you have.

If your taxable savings income falls within the basic rate band, you will normally pay income tax at the rate of 20%. The basic rate band for 2018/19 is £34,500. There is also a '0% starting rate' of £5,000  for savings income only, which may apply to your savings income in certain situations. There is also a 'personal savings allowance' of £1,000, 2018/19 for saving income only.

If you have any taxable savings income above the basic rate limit, you will have to pay more tax on it. This is firstly charged at the higher rate of 40% on the income above that limit. This means that in 2018/19 you will pay tax at the rate of 40% on taxable savings income above the limit of £34,500 2018/19, the 'personal savings allowance' is reduced to £500 for higher rate taxpayers.

If your taxable savings income exceeds the higher rate limit, you will have to pay tax at the additional rate of 45% on the income above that limit. The higher rate band limit is £150,000 for 2018/19. There is a 'personal savings allowanc'e  of £500, 2018/19 for savings income only.

How does the starting rate for savings work?

The starting rate for savings is a special 0% rate of income tax for savings income that falls within certain limits. It will only apply to you if your earned income is  low. The starting rate for savings band is £5,000 for 2018/19.

If your taxable earned or non-savings income is above your personal allowance plus £5,000, the starting rate for savings will not apply to your taxable savings income.

If any of your taxable savings income falls within £5,000 after your personal allowance, you will not be liable to pay tax on that taxable savings income.

How does the personal savings allowance work?

On 6 April 2016 the personal savings allowance was introduced, £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate tax payers aren’t eligible.

The allowance works together  with the starting rate for savings and both are dependent on your total taxable income.

The easiest way to establish if you qualify is to add up your non- savings income, if it is below or within your personal allowance plus £5,000 then the starting rate for savings will apply.

If this doesn’t cover all of your savings income then apply the personal savings allowance. To determine which rate to use add up all of your taxable income including savings income. If it's £46,350  or less then use £1,000, if between £46,351 and £150,000, use £500. Note, Scottish taxpayers use the English rates and bands for savings income.

Any savings income over these amounts will be taxable at the appropriate rate and it is your responsibility to inform HMRC. Where possible the amount owed will be collected via your tax code but if this isn’t possible a self-assessment tax return will be required.

Gift Aid alert – People who at present, use the tax they pay on savings as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

What are the upper and lower limits of income to get the starting rate for savings?

The guide below just provides the general rule. This may not provide you with the correct information if you have additional tax allowances or expenses that you can claim.

If you have taxable earned or non-savings income of between £11,850 and £16,850 the savings rate will apply to at least part of your savings income.

What are the upper and lower limits of income to get the starting rate for savings if you also get blind person's allowance?

The guide below provides the general rule. This may not provide you with the correct information if you have additional tax allowances or expenses that you can claim.

If you are also receiving blind person's allowance the upper limits will be increased by this amount and you will get the savings rate if your taxable non-savings income is between £11,850 and £19,240.

What tax rates apply to my dividends?

The dividend allowance has been reduced to £2,000 for 2018/19 (previously it was £5,000). Any dividend payments  above £2,000 are taxable at either 0%, 7.5%, 32.5% or 38.1% depending on your total taxable income. For example, a person receiving £3,000 in dividends won't pay tax if their total taxable income is under their personal allowance. However, they will pay tax on £1,000 at 7.5% if their total taxable income is between £11,851 and £46,350, at 32.5% on an income between £46,351 and £150,000 and 38.1% on income of £150,001 and over. Note, Scottish taxpayers use the English rates and bands for dividends.

Gift Aid alert – People who at present, use the dividend tax credit as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

More information

What if my only taxable income is savings income?

If you have no taxable earned income and all your income is taxable savings income, you will get your personal allowance against part of your income. The next part of your income that falls within the starting rate for savings band, £5,000, will not be taxed. Then you get the personal saving allowance 0f £1,000  where the income won't be taxed. The balance of your income that exceeds the starting rate band and personal savings allowance will be taxed at the basic rate of 20%.

What if my non-savings or earned income is above the upper limit for the starting rate for savings?

If your taxable non–savings or earned income is more than the upper limits for the starting rate for savings the 0% savings rate will not be available. However, you will be eligible for the personal savings allowance of £1,000 (£500 for incomes over £46,350 but below £150,000) savings income over this will be taxed in full at 20% (40% over £46,350, 45% over £150,000).

What if my earned income is less than my tax allowances?

If your taxable non-savings or earned income is below your tax allowances, you will be able to set some of your tax allowances against your savings income.

Any savings income that exceeds your tax allowances but is within the 0%  starting rate for savings or personal savings allowance will not be taxable. The balance of your savings income that exceeds the starting rate band  and the personal savings allowance will be taxed at the basic rate of 20%.

From April 2016 banks and building societies will not deduct tax at source. In 2017 banks and building societies started to inform HMRC about savings interest, but it remains  your responsibility to ensure that HMRC hold the correct information and that the tax is paid on any income above the savings and dividend allowances.

What if my non-savings or earned income falls between the lower and upper limits for the starting rate for savings?

If you have used up your tax allowances against your non-savings or earned income, but your remaining non-savings income is less than the upper limit of the starting rate band, you can use the balance of the starting rate band against your taxable savings income, if necessary you can then use your personal savings allowance. This means some or all of your taxable savings income won't be taxed any amount not covered by the 0% starting rate or the personal savings allowance is then taxed the basic rate of 20%.

The following examples for 2018/19 explain the interactions between the SR and the PSA.

Example 1 - Alex is 71 and has non savings income of £11,000. In addition he receives £600 in savings income. His non savings income is below £16,850 and the savings income is within the 0% savings rate of £5,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 2 - If Alex’s non savings income is £16,450, it is still below the £16,850 threshold and £400 of  his savings income is covered by the 0% savings rate. The remaining £200 is covered by the Personal Savings Allowance. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 3 - If Alex’s non savings income plus savings interest is between £16,851 and £46,350, he will not be eligible for the 0% Starting Rate but his savings income will be covered by the Personal Savings Allowance of £1,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 4 - If Alex’s non savings income is between £46,351 and £150,000 he will not be eligible for the 0% starting rate and only £500 of his savings income will be covered by the Personal Savings Allowance. The remaining £100 is taxable at 40% and he will need to contact HMRC to arrange payment.

 

What information should I keep?

You are legally required to keep records concerning your income and tax. It differs depending on whether you are employed of self-employed. The current time limits are given at the end of this document. You may have to pay a penalty if you don't keep records or if you don't keep your records for long enough.

Types of records you may need to keep

We only list the main documents here. If unsure we suggest you keep all documents concerning your income, savings and investments and tax paid.

Income from employment

  • your P45 - if you leave your job, part 1A of this form shows your pay and tax to the date you left
  • your P60 - if you're in a job on 5 April, this shows your pay and tax details for the tax year
  • form P11D - this shows details of your expenses and benefits, such as a company car or health insurance
  • certificates for Taxed Award Schemes
  • information about redundancy or termination payments

Benefits records

  • social security benefits including state pension
  • Statutory Sick Pay
  • Statutory Maternity, Paternity or Adoption Pay
  • Jobseeker's Allowance

Pension records

  • your form P160 (part 1A), which you received when you retired and started getting a pension from your former employer
  • your form P60 giving details of your pension and the tax deducted
  • any other details of a pension (including State Pension) and the tax (if any) deducted from it
  • Your form P45 when you have taken all of your money out of your pension under the pension flexibility rules

Interest, dividends or other income from UK savings, investments or trusts

  • bank and building society statements or passbooks
  • statements of interest and other income you've received from your savings and investments
  • tax deduction certificates supplied by your bank
  • dividend vouchers received from UK companies
  • life insurance chargeable event certificates
  • details of income you receive from a trust

Income from property

Keep details of the income and rents you've received, and the expenses you've paid from letting out property.

Foreign income or gains

Keep all dividend vouchers, tax certificates and personal financial records including:

  • records of overseas earned income, for example from employment, self-employment or property letting
  • end of year information for foreign pensions
  • dividend certificates from overseas companies
  • overseas Interest payments

How long to keep your records

You must normally keep your records for another year after the online tax return deadline of 31 January. We suggest that you keep records for the same amount of time even if you pay your tax via PAYE.

For example:

The tax return deadline for an online 2018-19 return is 31 January 2020.
You need to keep your records until 31 January 2021, one year later.

Business records

Keeping up-to-date and accurate records from the start is important for your business. It makes it easier to fill in your tax return. A good record system helps you keep track of your expenses. You may have to pay a penalty if you don't keep records or if you don't keep your records for long enough.

Always keep detailed records. It will make it easier to answer any questions that HMRC has about your tax return.

How long to keep your business records

You must normally keep your business records for another five years after the online tax return deadline of 31 January.

For example:

The tax return deadline for an online 2017-18 return is 31 January 2019.
You need to keep your records until 31 January 2024, five years later;

Earlier years;

2013/14   31st January 2020.

2014/15   31st January 2021.

2015/16   31st January 2022.

2016/17   31st January 2023.

2017/18   31st January 2024.

I have been sent an email from HMRC saying I have a refund Is this something they do?

No, HMRC never email people about refunds, you may get reminders to do something, but they will never ask you for information or ask you to use a link. It is a scam email and it is important that you do not disclose any personal information. Forward it to phishing@hmrc.gsi.gov.uk and then delete it. HMRC will not reply to you but they will take this seriously and investigate the source.

How long does it take to obtain my Online Filing Password?

If you are thinking of filing an online self assessment you need to make sure you leave time to register for an online government gateway account. It is much quicker than it used to be as the system uses one time password (OTP) technology. This means that a password that is valid for only one login session or transaction is sent to your mobile phone each time you access your account.

However, the best advice we can offer is to complete your return as soon as you get it.

When does my tax return need to be filed with HMRC?

If you are filing on paper it needs to be with HMRC by the 31st October after the end of the tax year. If filing online it is the 31st January after the end of the tax year. Remember to give the post office time to deliver it and to obtain proof of posting.

For example,  the deadlines for a 2017/18 tax return are;

Paper, 31st October 2018

Online, 31st January 2019

Tax due must be with HMRC by 31st January 2019.

Can I give my house to my children and continue to live in it and avoid inheritance tax?

Basically, no. It is possible if you pay a full market rent for your home but then your children are taxable on the rent received. There are very complicated schemes around to avoid inheritance tax on the family home but you should consult a tax specialist and a solicitor before embarking on them.

If I sell my house do I have to pay Capital Gains Tax?

If your house is your home and you have always lived in it, then you do not have to pay Capital Gains Tax.

How much can I give away each year without creating Inheritance Tax implications?

You can give a total of £3,000 without any Inheritance Tax implications, in addition £5,000 if it is a wedding present to a child, £2,500 to a grandchild getting married or £1,000 to any other person on their marriage.

If you did not use the £3,000 exemption the previous year it can be aggregated with the current year. This only applies for one year so £6,000 is the maximum.

Apart from this you may give as many small gifts as you wish, provided they do not total more than £250 per person

Also, you may give larger sums than all those mentioned above but you would need to survive 7 years from the date of the gift for it not to be included in the calculation of your estate.

Another useful exemption is 'normal expenditure out of income'. Lifetime gifts are exempt if they are part of the donor's normal expenditure, made out of income and the donor is left with sufficient income to maintain his or her usual standard of living.

I think HMRC owe me money, what is the deadline for claiming refunds?

You can claim back overpaid tax for up to 4 years after the end of the tax year. The deadline for;

2013/14 is 5th April 2018

2014/15 is 5th April 2019

2015/16 is 5th April 2020

2016/17 is 5th April 2021

2017/18 is 5th April 2022

Can you explain the 0% Starting Rate for Savings and the Personal Savings Allowance?

Starting Rate for Savings (SR) - On 6 April 2015 the 10% starting rate was abolished and replaced by the 0% starting rate.

The 0% band for 2015/16, 2016/17, 2017/18 & 18/19 is £5,000. It is restricted by non- savings taxable income so that none of the band will be available if that income is above their personal allowance (& blind person’s allowance if claimed) plus the £5,000 starting rate.

Personal Savings Allowance (PSA) - On 6 April 2016 the Personal Savings Allowance was introduced, £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate tax payers aren’t eligible.

The two allowances work together and are dependent on your total taxable income.

Interest Paid Gross – From 6 April 2016 savings income will be paid gross (without tax being taken). The R85 was also discontinued.

The easiest way to establish if you qualify is to add up your non savings income, if it is below or within your personal allowance plus £5,000, £16,500 2017/18 then the Starting Rate for Savings will apply.

If this doesn’t cover all of your savings income then apply the Personal Savings Allowance. To determine which rate to use add up all of your taxable income including savings income. If it's £46,350 or less then use £1,000, if between £46,351 and £150,000, use £500. If higher it doesn't apply.

Any savings income over these amounts will be taxable at the appropriate rate and it is your responsibility to inform HMRC. Where possible the amount owed will be collected via your tax code but if this isn’t possible a self-assessment tax return will be required. Scottish Taxpayers use the UK rates and bands for Savings interest.

Gift Aid alert – People who at present, use the tax they pay on savings as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

The following examples for 2018/19 explain the interactions between the SR and the PSA.

Example 1 - Alex is 71 and has non savings income of £11,000. In addition he receives £600 in savings income. His non savings income is below £16,850 and the savings income is within the 0% savings rate of £5,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 2 - If Alex’s non savings income is now £16,450, it is still below the £16,850 threshold and £400 of his savings income is covered by the 0% savings rate. The remaining £200 is covered by the Personal Savings Allowance. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 3 - If Alex’s non savings income plus his saving interest is between £16,851 and £46350, he will not be eligible for the 0% Starting Rate but his savings income will be covered by the Personal Savings Allowance of £1,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 4 - If Alex’s non savings income is between £46,351 and £150,000  he will not be eligible for the 0% starting rate and only £500 of his savings income will be covered by the Personal Savings Allowance. The remaining £100 is taxable at 40% and he will need to contact HMRC to arrange payment.

Am I entitled to Married Couple’s Allowance?

Only, if you or your wife, or partner if you are in a civil partnership were born before 6 April 1935. HMRC will need certain details so make sure you have them to hand. Wife/civil partner's national insurance number, date of birth and the date of marriage.

 

Is attendance allowance taxable?

<span style="font-family: Arial;"> No, it isn’t.</span>

Can I transfer my allowances?

Marriage Allowance -  It is possible for married couples and civil partners to transfer a fixed amount of their personal allowance to the other. Providing the spouse transferring the allowance is not liable to income tax above the basic rate and the recipient is also not liable to income tax above the basic rate.

You can apply online at www.gov.uk/marriage allowance or if you are digitally excluded phone HMRC's main number 0300 200 3300 and say marriage allowance when prompted.

Married Couple's Allowance - If you were married or joined in a civil partnership before 5th December 2005, the married couple's allowance is automatically given to the husband, if on or after 5th December 2005, the MCA is given to the partner with the higher income. Those married or joined in a civil partnership before 5 December 2005 wanting to elect for the new rules to apply to them need to contact HMRC. However, you can also choose to transfer the minimum amount or to transfer surplus allowances.

Transfer of the minimum amount:  It is possible to share the minimum Married Couple's Allowance between you or, if you both agree, you can choose to transfer the whole of the minimum Married Couple's Allowance to your spouse or civil partner. In this case you'll need to complete form 18 - Transferring the Married Couple's Allowance before the start of the tax year.

Transfer of surplus allowances: If a partner has unused MCA in a tax year they can ask for the balance (or ‘surplus’) to be transferred to their spouse or civil partner. The request is made on a form 575 after the end of the tax year.

Both of these transfers are generally executed using a person’s tax code and can become quite complicated. Seek advice if it isn’t clear what is happening.

The blind person’s allowance  - is also transferable between spouses.

What are the tax bands?

Income 2016-2017 Income 2017-2018 Income 2018-2019
£11,001 to £32,000 20% £11,501 - £33,500 * 20% £11,851 - £34,500 * 20%
£32,001 to £150,000 40% £33,501 * to £150,000 40% £34,501 * to £150,000 40%
Over £150,000 45% Over £150,000 45% Over £150,000 45%

Scotland

* 2017/18 the Basic rate band for Scotland - up to £31,500  ** 2017/18 the Higher rate band for Scotland - between £31,501 to £150,000

In 2018/19 Scotland has 5 bands;

Starter rate                     19%          £11,850 to £13,850

Basic rate                        20%         £13,851 to £24,000

Intermediate Rate          21%          £24,001 to £43,430

Higher rate                    41%          £43,431 to £150,000

Top rate                         46%          Above £150,000

These rates apply to TAXABLE income that is over and above your personal allowance. For example, a person would have to have income of over £11,850, 2018/19 before paying tax at 20% and over £46,350, 2018/19 (£43,430 in Scotland) before paying at 40%.

Starting Rate for Savings - 2016/17, 2017/18 & 2018/19 is 0%. Only applies to those with taxable income under £16,000 2016/17, £16,500 2017/18 & £16,850 2018/19. For more information please go to FAQ - Can you explain the 0% Starting Rate for Savings and the Personal Savings Allowance?

Scottish taxpayers use the UK rates & tax bands for interest and dividends.

What are my allowances?

2016/17 2017/18 2018/19
Personal Allowance  - Incomes up to £100,000  £11,000  £11,500 £11,850
Marriage Allowance  £1,100  £1,150 £1,185
Blind Persons Allowance  £2,290  £2,320 £2,390
Starting Rate for Savings  £5,000  £5,000 £5,000
Personal Savings Allowance - Basic rate tax payer  £1,000  £1,000 £1,000
Personal Savings Allowance - Higher rate tax payer  £500  £500 £500

Married Couples Allowance  - You are eligible where at least one of you was born before 6th April 1935,  2016/17 £8,355, 2017/18 £8,445 & 2018/19 £8,695, but only allowed as a 10% reduction to your tax bill on incomes below  £27,700 2016/17, £28,000 2017/18 & £28,900 2018/19. This means that your tax bill will be reduced by up to £869.50, to nil, it cannot create a refund.

People on incomes over  £37,970 2016/17 , £38,070 2017/18 & £39,570 will not receive the allowance.

Starting Rate for Savings - Only applies to those with taxable income under £16,000 16/17, £16,500 2017/18 & £16,850 2018/19. For more information please go to FAQ - Can you explain the 0% Starting Rate for Savings and the Personal Savings Allowance?

 

Can I reclaim tax taken from a one-off pension payment?

If you have taken a trivial commutation from a final salary pension or a small lump sum from any other type of pension it is usually taxed at 20%. Check first, to see if you are owed a tax refund, in most cases the tax is correct, but sometimes there is an underpayment. If you are due a refund complete form P53.

If you have taken a payment under the pension flexibility rules it is slightly different. These payments are usually taxed on 'emergency code' which generally takes too much tax. Again check if you are due a refund. There are two scenarios and the form you use depends on whether;

  • you have taken all of the money from your fund - You receive a P45 - Use form P50Z if you have no other PAYE income, use P53Z if you have other PAYE income
  • you take part of your money - HMRC will issue a tax code to the provider for future withdrawals, If you are going to take more money out in this tax year you can't get a refund in year and should wait for HMRC's reconciliation process to receive the refund. If you intend the first payment to be the only one in the tax year you can use form P55 to reclaim any over paid tax

All forms can be found on www.gov.uk, search for the form number or via your personal tax account (register via www.gov.uk/personal tax account). Alternatively contact HMRC on 0300 200 3300.

For either type of lump sum, people in Self Assessment generally reclaim/pay overpaid or underpaid tax via their tax return at the end of the year. However, in year claims can be made, but the information must also be provided in the tax return at the end of the tax year.

If you need help to check whether you are due a refund you can call Tax Help on 01308 488066.

How will money I take out of my pension plan be taxed?

If you have taken a trivial commutation from a final salary pension or a small lump sum from any other type of pension it is usually taxed at 20%.

If you have taken a payment under the pension flexibility rules it is slightly different. These payments are usually taxed on 'emergency code'  on a month1 basis, where they will: 

  • take off £1,042 from the payment which is not taxed, this being 1/12 of the standard Personal Allowance (£12,500 in 2019/20)
  • tax the next £3,125 at 20%, this being 1/12 of the basic rate tax band (1/12 of £37,500 in 2019/20)
  • tax the next £9,375 at 40%, this being 1/12 of the higher rate tax band (1/12 of £112,500 in 2019/20)
  • Any remaining amount (that is, above £13,488), they will tax at 45%.

If the pension provider were to use a weekly payroll scheme, the yearly figures would be divided by 52 and would mean even more tax was deducted; but most are likely to use a monthly calculation.

In most cases in year refunds are possible and all forms can be found on www.gov.uk, search for the form number or via your personal tax account (register via www.gov.uk/personal tax account). Alternatively contact HMRC on 0300 200 3300.

For either type of lump sum, people in Self Assessment generally reclaim/pay overpaid or underpaid tax via their tax return at the end of the year. However, in year claims can be made, but the information must also be provided in the tax return at the end of the tax year.

We also have an easy to follow guide on pensions and taxation.

If you need help to check whether you are due a refund you can call Tax Help on 01308 488066. We also have an easy to follow guide on pensions and taxation.

How do I claim back tax when I cash in a small pension?

Included in this section;

  • Trivial Commutations
  • Pension flexibility

Trivial commutations (cashing in your whole pension pot)

Rules which came into force on 6 April 2006 mean that if your total pension savings are very low, you can draw the whole lot out as cash. This is called ‘trivial commutation’. If the total of all your occupational and personal pension funds does not exceed a certain limit (£30,000 from 27th March 2014), then you may cash them in and collect them straightaway without having to buy an annuity (pension).

From April 2015 only defined benefit pension schemes (often known as final salary) will be able to make trivial commutation payments. The age limit also reduces to the normal minimum pension age currently 55. A payment is called ‘trivial’ if the value of all an individual’s pension ‘pots’ is below £30,000 and it is taken as a lump sum. An occupational pension scheme benefit worth £10,000 or less can also be taken as a small lump sum separately from the triviality rule above. In addition small pension pots, up to £10,000 can be taken as a lump sum regardless of the value of all the ‘pots’. You can do this for up to a maximum of three pension pots.

Of the total, you may receive 25% as a tax-free sum and the remainder is taxable at your top rate of tax (known as your marginal rate). This means that the taxable portion is added to your other taxable income. Incidentally, this 25% tax free amount only applies if you haven’t yet started to receive the pension. If you have then, unfortunately, the whole of the payment is taxable at your marginal rate.

Any amount taken in this way which is over the amount of tax free cash available, is taxed as normal income.

Since 2013 the taxable portion of the lump sum will be taxed at Basic Rate (BR). In many cases this will be correct and there will be no further tax due or tax to be repaid. For those of you, however, who started from a non-taxpayer position, i.e. other income below their personal allowances, there will be a need to ask for an immediate repayment using form P53, (available by calling HMRC, 0300 200 3300 or the online version at www.hmrc.gov.uk) since you will have lost out on the unused part of your allowances; whereas those who get pushed into a higher tax band by the addition of the lump sum may need to pay some extra tax.

Note – working out how much your pension funds are worth for this purpose may not be straightforward, especially if you have an occupational pension scheme, so speak to your pension provider or the Pensions Advisory Service.

Pension Flexibility From 6 April 2015

The Key Changes

The changes mainly affect people with defined contribution pensions, more commonly known as money purchase schemes. These include individual, group personal, stakeholder pensions, most additional voluntary contribution schemes (AVCs) and self-invested personal pensions (SIPPs). This means the changes apply to you if you have built up one or more ‘pots’ of cash or investments in pensions and you have to decide what you do with it. The changes mostly do NOT cover defined benefit schemes, often known as final salary pensions. These are pensions where the money you take from them is worked out based upon how much you earned with an employer and how long you were a scheme member. The rules of some pension schemes do not allow withdrawal of some sums, even though the tax rules now allow them. Pension providers have been permitted by law to override their own rules, but they do not have to do so. This means that your pension provider might refuse to do some of the things that the general pension rules allow. If you are unsure which type of pension you are paying into or want to know what you will be allowed to do, ask your scheme provider.

The main changes include:

  • Flexible access to pensions from the age of 55
  • Freedom in the way ‘tax free’ cash can be taken
  • Removing restrictions on ‘drawdown’ arrangements
  • Abolition of the 55% pension ‘death tax’

The Government has also guaranteed that everyone with a defined contribution pension will be offered free, impartial guidance. This aims to cover the range of options available, helping you to make sound decisions and get the most from your choices. This ‘Pension Wise’ service is available from:

  • The Pensions Advisory Service (TPAS)
  • Citizens Advice Bureau (CAB)
  • Pension Wise and the Money Advice Service (MAS)

Contact details are at the end of this section.

Flexible access to pensions from the age of 55

Up to now, most people who have saved in a pension scheme have then used the money to buy an annuity which gives a guaranteed income in the form of a pension. From April 2015, you have more options. You can decide how much and when you take money out of your pension (often called a ‘pension pot’). In theory and whilst the ‘pot’ lasts, you will be able to take out as much as you like, whenever you like. The three main choices available will be:

  • To withdraw all of the money in one go
  • Leave it in the scheme and take a regular or occasional income
  • Buy an annuity or enter into a ‘drawdown’ arrangement

Or

  • A combination of all three.

The tax implications of these options depend on your own personal circumstances. Taking benefits in any of the ways highlighted above will mean that future contributions to money purchase plans could be restricted. Essentially, they will be limited (with exceptions) to a maximum of £4,000 per year (£10,000 17/18). If you think that this might impact on your plans, we recommend that you seek independent financial advice.

Freedom in the way ‘tax free’ cash can be taken

Most people can already take up to 25% of their pension ‘pot’ as a tax free cash lump sum. From April 2015, how you choose to do this has changed. The options now are:

  • Take 25% of the pot tax free in one go, meaning any further withdrawals will be taxed as income;

Or

  • Take 25% of every cash withdrawal tax free, with the remaining 75% taxable as income.

Taxation in more detail

If your scheme provider allows, you can use your pension pot ‘like a bank account’ rather than buying an annuity. Under these new rules you have two options, you can:

  • take part of your fund
  • take all of your fund

But you will need to watch out as you could have to pay tax on what you take out – so it’s not as easy as when you take money out of a bank account! If you choose to take part of your fund, you will first decide whether you take 25% of the whole fund as a tax free amount or 25% of each withdrawal. Whichever you choose, any amount taken in excess of the 25% will be taxed under Pay As You Earn (PAYE). If you choose to take all of your fund, 25% will be tax free and the remaining amount will be taxed under PAYE. In most cases these payments will be taxed without consideration to any other income you may have during the tax year. This will mean that you could pay too much tax (an ‘overpayment’) or not enough tax (an ‘underpayment’) by the end of the tax year.

How your pension payment is taxed

Tax is taken using the PAYE system. If you are or have been an employee, you may recognise this as similar to the way your employer took tax off your wages or salary.

How your pension payment is taxed depends on whether:

  • you decide to take part or all of your fund
  • you have other PAYE income and
  • you receive the State Pension.

As above, only part of your pension payment might be taxable, depending on how you choose to use your tax free cash sum. The following comments apply only to the part of the sum that is to be taxed. The pension provider uses a PAYE code number, but this is worked out on an ‘emergency’ or ‘month1/week1’ basis (see below for more detail on this); unless you give them an ‘in year’ P45. If you have stopped work you will get a P45 from your previous employer. It will show how much you have earned and how much tax you have paid since 6 April, and what code number your employer has been using. You might also get one from another pension provider, if you have taken everything out of a single pension pot. If you give your pension provider a P45, they should use the code number from it.

Getting your tax back

The system differs depending on whether you have;

  • Taken all of your money out of a pension pot
  • Taken part of your money out of a pension

If you take all of your money out of a pension pot

If you pay your tax under PAYE you can claim the overpaid amount back during the tax year. Your scheme provider should provide you with a P45 showing details of the payment. You may have to send this form to HMRC when you claim a repayment.

If you have no other income or just receive your State Pension, use form P50Z.

If you have other PAYE income, use form P53Z. You can either telephone HMRC for the forms (telephone number given at the bottom of this section), or search www.GOV.UK for P50Z, P53Z.

This ability to claim back tax during the tax year applies if you have taken everything out of a pension pot. For instance, you had £20,000 with XYZ Mutual and have taken all of the money and tax has been taken under PAYE. There is nothing left with XYZ Mutual (though you might still have another pension pot – say, £10,000 with ABC Investments – that you have not touched; that does not matter).

If you do not send in a claim during the tax year, HMRC should look at all of your PAYE records after the end of the tax year. Where there has been a tax overpayment of any amount or an underpayment of at least £50, HMRC will send you a ‘P800’ calculation. This should pick up on overpayments that haven’t been claimed within the tax year. But if the system fails, you may not hear from HMRC or you may get a P800 calculation that is incorrect, so you need to try to understand your situation for yourself.

If you usually complete a self-assessment tax return, you will have to wait until the end of the year to balance your account.

If you have taken only part of your money out of a pension pot

Tax overpayments and underpayments will be dealt with under the normal PAYE rules. This means that you will not be able to claim back tax during the tax year if you have not taken everything out of a pension pot.

So let’s say you had two pension pots, one of £20,000 and the other of £10,000. You have taken out £5,000 from the first, so there is still £15,000 left in it. Although your pension provider will take some tax under PAYE and tell HMRC about the payment and tax deduction, they will not issue a P45 as you still have money left in the pot. HMRC should issue a code number to the pension provider in case you take any more payments from it during the tax year (in which case the PAYE system might give you a refund of earlier tax paid), but normally you will have to wait until after the end of the tax year to get back any overpayment.

There is an exception to the above which applies if you only intend to take a single part payment in a tax year. In that instance you can reclaim any overpaid tax during the year using form P55.

As above, if you haven’t made a claim during the tax year HMRC should look at all of your PAYE records after the end of the tax year. Where there has been a tax overpayment of any amount or an underpayment of at least £50, HMRC will send you a ‘P800’ calculation. This should pick up on overpayments that haven’t been claimed within the tax year. But once again if the system fails, you may not hear from HMRC or you may get a P800 calculation that is incorrect, so you need to try to understand your situation for yourself.

If you usually complete a self-assessment tax return, you will have to wait until the end of the year to balance your account.

Pension Wise

www.pensionwise.gov.uk

The Government’s guidance service. Visit the website for general information on taking money out of a defined contribution pension.

T: 030 0330 1001

For a telephone or face to face appointment, between 8am and 10pm, Monday to Sunday. Calls cost the same as a normal call - if your calls are free, it’s included.

The Pension Advisory Service

www.pensionsadvisoryservice.org.uk

T: 0300 123 1047

For other pensions help, particularly with defined benefits pensions.

Money Advice Service

www.moneyadviceservice.org.uk

Free and impartial money advice, set up by government

T: 0800 138 7777

Monday to Friday, 8am to 8pm Saturday, 9am to 1pm

How do I claim back tax I have overpaid through PAYE on wages or pensions?

This section looks at what to do if you have paid too much tax on your wages or pension and what the time limits are for making a claim.

First though, we look briefly at HMRC’s P800 tax calculation process, which may mean you do not need to claim a repayment, as HMRC will issue any repayment automatically. If you have not received a P800 tax calculation from HMRC, and you have overpaid tax, you will need to make a claim for a tax repayment.

What is a P800 tax calculation?

Your employer or pension provider gives HM Revenue & Customs (‘HMRC’) details of how much income you have received, how much tax you have paid and the value of any benefits in kind you have received during the tax year.

Using this information, HMRC carry out an automatic reconciliation at the end of each tax year, to work out whether or not you have paid the right amount of tax. If HMRC think you have not paid the right amount of tax, they send you a P800 tax calculation. This calculation will show you what tax HMRC think you should have paid.

You must always check your P800 tax calculation carefully, as HMRC may not have all the information they need to calculate your tax correctly, or they may have inaccurate information.

If HMRC think you have overpaid tax, they will send you a repayment of tax automatically – you do not need to make a claim.

If HMRC think you have not paid enough tax, they will write to you explaining that they intend to collect the underpaid tax through your tax code or telling you how you can repay it to them.

For more information on what to do if you receive a P800 tax calculation, please read our section ‘When things go wrong’, ‘Complaint or Appeal’

How do I claim a refund for the current tax year?

If you receive employment income or pension income and pay tax through the PAYE system you may sometimes pay too much tax. There are various reasons for this. HMRC provide a list of typical reasons for an overpayment of income tax arising on employment income. They also provide a list of reasons why an overpayment might arise on pension income.

If you think you have overpaid tax through PAYE in the current tax year, before the end of the tax year tell HMRC why you think you have paid too much. It is probably best to telephone them initially, the helpline for individuals and employees is 0300 200 3300.

Before you telephone HMRC, you will need to gather together:

  • your personal details – such as your full name, address, date of birth and National Insurance number;
  • details of each of your employers or pension providers – their PAYE scheme reference number, which should be shown on your payslip, or ask your employer or pension provider for it;
  • estimates of your earnings and pensions from each source for the current tax year.

Make sure you keep a note, in a safe place for future reference, of:

  • the date and time of the phone call;
  • the name of the adviser you spoke to; and
  • what was said by both you and the HMRC adviser.

You may need to send in more information to support your claim and if so HMRC will let you know what paperwork you should supply.

Once HMRC process your claim it might be necessary to issue you with a new tax code, meaning any refund will be added to your wages or pension and the amount will generally be paid automatically through the payroll. This will result in a lower tax deduction or a tax refund through PAYE.

However if the repayment is due towards the end of the tax year and you have already received your final pay for that year, you may have to claim a refund directly from HMRC.

How do I claim a refund if I have stopped working part way through the tax year?

If you have stopped work part way through the tax year and are not going to have a continuing source of taxable income, for example, you are not intending to go back to work within four weeks or claiming a state benefit, you should be able to claim an in-year tax repayment using form P50.

You must send parts 2 and 3 of your P45 together with form P50 to HMRC. If you are entitled to a repayment of income tax, HMRC will send it to you – usually by cheque in the post.

You cannot use form P50 if you are claiming, or intending to claim a state benefit such as jobseeker’s allowance (‘JSA’).

If, for example, you stop work in June, having been employed at some point since the beginning of the tax year on 6 April, and you do not get another job but start to claim JSA, you will need to let Jobcentre Plus have your form P45 from that paid work. They will then put the details onto their computer. If you have already paid some tax under PAYE in the year, you will not get this refunded until the earlier of:

  • ceasing to claim JSA – in which case your refund comes from Jobcentre Plus;
  • the end of the tax year – in which case, you have to liaise direct with HMRC for your refund.

How do I claim a refund after the end of the tax year and for previous tax years?

If you have paid too much tax through your employment and the end of the tax year in which you overpaid tax has already passed you can make a claim for a refund by writing to HMRC.

Mark the top of your letter clearly with ‘repayment claim’ so that HMRC prioritise it on receipt.

You can write to HMRC using the tax office address of your current employer or the postal address on the most recent correspondence you have from HMRC. If you do not have any recent documents or letters from HMRC, write to:

HM Revenue & Customs
Pay As You Earn and SA
BX9 1AS

Generally your letter, should include:

  • give your full personal details – your name, address and national insurance number;
  • include as much information as possible about your employment history, for example, PAYE reference numbers for your employers, dates of employment, how much you earned and how much tax was deducted;
  • enclose copies of P60s and P45s if you have them – keep the originals;
  • say why you think you are due a repayment;
  • be signed and dated in ink.

Keep a copy of your letter and any enclosures and ask the Post Office for a proof of posting in case of later query.

HMRC say they usually aim to process PAYE repayments within four weeks of receipt. In some cases, HMRC will need to carry out security checks. It might help to speed up the repayment if you ask HMRC to pay it direct to your bank account. To request a direct bank transfer, include in the letter:

  • the name of the account holder(s);
  • the sort code; and
  • the account number.

But be aware that HMRC might want to make additional security checks if you request repayment into an account which is not in your own name.

In most cases you can get back the tax you have overpaid as long as you claim on time. The time limits for claiming a refund are shown in the section below. If you fail to make a claim within the time limit you will miss out on any refund due.

What can I do if I am too late to make a claim for a repayment?

Claiming back tax for 'closed' tax years - Extra-statutory Concession B41

If you think you have overpaid tax in tax years that are ‘closed’ to reclaims, there is a rule known as Extra-statutory Concession B41 which can allow HMRC to repay tax for those earlier years. This only applies in limited circumstances.

This concession only applies in situations where HMRC or another government department, such as the Department for Work and Pensions, have made an error in your tax affairs and where there is no doubt about the facts of the case.

The relevant part of the concession reads as follows:

‘....However, repayments of tax will be made in respect of claims made outside the statutory time limit where an over-payment of tax has arisen because of an error by HMRC or another Government Department, and where there is no dispute or doubt as to the facts.....'

In our experience, it is rare for HMRC to grant this concession so you will need to set out clear evidence as to what the error was, which resulted in you paying too much tax.

What do I do if my employer or pension provider has made a mistake?

Employer or pension payer error guide

If HMRC calculate that you have underpaid tax but you think that the underpayment arises because your employer or pension payer failed to operate PAYE correctly, you have the right to challenge whether HMRC should ask your employer or pension payer to pay it instead.

Here, we aim to provide a guide to the law and advise you what to do next.

The guide is divided into the following sections:

  1. Background and an overview of the law
  2. What might your employer or pension payer have done wrong?
  3. What should you do?
  4. What happens next and information about your rights
  5. Key messages if you are confused or worried

1. Background and an overview of the law

PAYE is a three-party process, involving:

  • HMRC
  • those making payments within its remit (usually employers and pension payers), and
  • the employee/pensioner recipient.

Its operation is set out in law, together with each of the parties’ responsibilities. Information can pass between all three and sometimes the system breaks down. The issue considered in this guide is whether the employer or pension payer has failed to do something they are required to do by law – for example, not acting on instructions received from HMRC or not following the correct procedure when taking on a new employee or pensioner.

When PAYE works properly and a correct code has been operated throughout the year, the tax paid should broadly equal the tax due. There can be small ‘rounding’ discrepancies of just a few pounds or pence but generally these are ignored.
Basically, those making payments under PAYE are required to follow the rules and deduct the right tax before paying the ‘net’ (after-tax) amount to the payee.

Mistakes can of course happen. Forms can get lost in the post (although these days, most exchanges between employers/pension providers and HMRC are done electronically) and there can be breakdowns in communication. It can be a very difficult task for you, the employee or pensioner, in receipt of an underpayment ‘P800’ or 'PA302' calculation from HMRC to work out why it has arisen. Usually, all you know is that you thought everything was fine until, out of the blue, you have been told otherwise.

Each of the three parties in the process could have been at fault:

  • You might not have told HMRC about something affecting your tax affairs
  • HMRC might not have acted upon information in their possession to get your tax right, or made some error in doing so
  • Your employer or pension payer might not have followed the rules correctly.

In some cases, there might be a far more serious situation, where the employer or pension payer has not simply made an error, but they have been generally irresponsible in the way that they have operated PAYE or have deliberately not operated PAYE correctly.

2. What might your employer or pension payer have done wrong?

HMRC records can often show whether or not an employer or pension payer has taken a range of steps to operate PAYE in accordance with HMRC’s instructions. HMRC should not issue a tax calculation without checking why an employer or pension payer has acted inappropriately.

You might think to ask your employer or pension payer what has gone wrong. But be very careful - this is not the role of the taxpayer and is unlikely to get a favourable (or a friendly) response. We recommend that you ask HMRC to investigate, as they are in a much stronger and better position to do so.

But when you are checking the P800 calculation, you should bear in mind the types of errors that employers or pension payers do make:

  • They may not have operated the PAYE code issued by HMRC. Have a look at any coding notices you received from HMRC and compare them to the ‘final tax code’ box on the P60s you should have received after the end of the tax year – if things have been done right, they should usually match.
  • Did you hand in a P45 when you started a new job? Did the code used by your new employer match the one on the P45?
  • If you did not have a P45 to hand in when you started a new job, were you asked for information so that your employer could inform HMRC via a starter form (old P46)?, Do you think your employer used the right tax code based on the answers you gave?
  • Your P800 or PA302 calculation might have included a note to say that you have been given more than one personal allowance on different sources of income. There are a number of ways this can happen, but it could be an indication of employer or pension payer error.

Note that prior to 2015/16, PAYE sources of income are grouped together on a P800 under the description PAYE income. You may need to add up the information on several P60's or P45's to arrive at the figure produced by HMRC. From 2015/16 income sources should be listed individually and should match your P60/P45 for that source.

What should you do?

If you suspect any of the above situations apply to you or that there has been some other error by your employer or pension payer, either deliberately or perhaps by way of poor administration, you should contact HMRC. You can telephone them, or alternatively write a letter.

HMRC’s guidance says that you should give details of what you think has gone wrong. You might of course not understand the detail, but still feel something has gone wrong which is not your fault. In that case, we recommend you ask HMRC if they have considered whether your employer or pension payer is in any way at fault. If they do not feel that there has been any error on the employer or pension payer’s part, you should get HMRC to explain why the underpayment has arisen. (It is unlikely that you have will have received an adequate explanation on the P800 issued by the computer – it might just say something bland like ‘The reason for the underpayment is given on the enclosed sheet’, but the only other sheet is the calculation itself.).

4. What happens next and information about your rights

It is up to HMRC to review the situation and then tell you of their decision, which will be one of the following:

  • That there is no employer or pension payer error, in which case they should tell you why they have reached that conclusion. You should insist that they give you a full explanation of how they think the underpayment has arisen and consider your next move – for example, whether you wish to claim for the tax to be written off under other provisions covered in our guides.
  • That the employer or pension payer is at fault and they are pursuing them for the tax instead of you – in which case you should not have to pay HMRC the under-deducted tax, but your employer might seek to recover the amount from your wages. Whether your employer can do this is a matter of employment law and not one upon which we can advise.
  • That the employer or pension payer is at fault but HMRC have concluded from their investigations that they acted ‘in good faith’ and ‘took reasonable care’ to operate PAYE correctly. When considering whether an employer or pension payer has taken reasonable care HMRC should look to see how that employer or pension payer has been handling the PAYE obligations of other employees or pensioners. Also, whether returns have been accurate and on time and whether the error in your case has been replicated with others. It would be reasonable for you to ask to be told the extent of HMRC investigations.
  • That the employer or pension payer deliberately failed to deduct the right amount of tax from you and you knew about it.

In the latter two situations, HMRC will need to issue a formal notice (a ‘Direction’) to both you and your employer or pension payer that they think you should pay the tax. You then have a right to appeal in writing to HMRC within 30 days against their Direction, either by way of HMRC’s internal review system or an independent tribunal. More information on appeals generally can be found in the ‘When things go wrong’ section of this website.

It is also possible that your tax underpayment has arisen for more than one reason – in which case, HMRC might consider that part of it is due to an employer or pension payer error, and part for other reasons. They could then treat each part of the tax bill differently – for example, agreeing to pursue your employer or pension payer for part of it and still asking you for the balance.

5. Key messages if you are confused or worried

We would not be surprised if by now you are confused.

The key point is that you make contact with HMRC either by telephone or in writing to raise your concerns over the calculation you have been issued, and not to be easily deterred if you cannot get through or are initially declined what seems fair treatment.

When contacting HMRC, keep a note of your conversation and copies of any correspondence and papers sent to them, together with proof of postage.

As noted above, you do have rights and should not be afraid to exercise them. Indeed, LITRG campaigned successfully back in 2003 for HMRC to change the law so that appeal rights were included for taxpayers where their employer or pension payer has made an error.

Are Pension Credits taxable?

No, they are not taxable

Is my state pension taxable?

Yes, it is. However, there is no mechanism to deduct tax due at source so those pensioners with occupational pensions have their personal tax allowance reduced by the amount of the state pension so that the tax due on both sources is all deducted from the occupational pension.

If your state pension exceeds your personal tax allowance but you do not have any other source of income, then HM Revenue &amp; Customs (HMRC) will collect the tax in a lump sum through another method. Up to and including the 2015/16 tax year it was the self assessment system. From the 2016/17 tax year HMRC will send you a PA302 calculation, known as Simple Assessment.  If you think this is you and you don't hear from HMRC contact them to find out what you should do, or call Tax Help for Older People.

This change is good news because rather than expecting you to complete lengthy forms, HMRC will instead send you a bill called a PA302 explaining how to pay. All you need to do is check that the figures agree with yours and pay by the following 31st January. If you think something is wrong or you can't afford to pay in one lump sum contact HMRC immediately as late payment interest will start after the payment deadline.

Is my savings income taxable?

Income from savings is classed as taxable income, but from 6 April 2016  banks and building societies  no longer take tax before paying it to you and the R85 was discontinued.  However, some people may still need to pay tax on their savings income where it isn't covered by the Starting rate for savings (£5,000 @ 0%, 2019/20) or the Personal Savings Allowance (£1,000, 2019/20).

If this is the case for you, contact HMRC to arrange for the tax to be paid.

How do I claim back tax on savings income?

Prior to the tax year 2016/17  income from savings, for example, bank or building society interest, was normally received net of tax. This meant that the bank or building society, or other savings provider, had taken tax off before you got it. This deduction of income tax was normally at the basic rate of 20%. From April 2016 this is no longer the case and you will receive the interest gross (without tax being taken off), the responsibility then falls to you to tell HMRC if you owe any tax. Read the section on 'What tax allowances apply to me?'.

For tax years 2015/16 and earlier, if you are on a low income, you may be able to get back some or all of the tax you have paid on your interest.

We explain how to claim a refund of tax paid on savings income in this section. This section is for people who are not within self assessment, that is, people who do not have to fill in a tax return.

How do I claim back overpaid tax on savings income?

Prior to 2016/17, tax was automatically taken off the interest on UK savings at the rate of 20%. You may need to claim a repayment of tax, if any of your savings income should only have been subject to the 0% starting rate of tax for savings or should not have been taxed at all.

To claim back overpaid tax on savings income you need to fill in a form R40.

If you have already filled in a form R40 in earlier years, you should receive one automatically each tax year. The form will show the HMRC office address to which you need to send in the completed R40.

If you have not filled in a form R40 before then you can get the form online or request a copy by telephoning HMRC 0300 200 3312. The form comes with guidance notes to help you. When it is complete, send it to;

HM Revenue & Customs
PAYE
BX9 1AS

What information do I need to keep?

Keep:

  • a copy of the completed form R40 before you send it to HMRC
  • proof of postage from the Post Office recording the date you sent it to HMRC, in case of later query
  • the paperwork to support the claim for repayment for at least two years from the end of the tax year for which the claim is made
  • interest certificates and bank statements for each of your bank and building society accounts
  • paperwork relating to any other savings income, such as the interest element of a purchased life annuity
  • dividend vouchers, as you will need to include any dividends and their associated 10% tax credits on the form R40.

What information do I need to give HMRC to claim a repayment of tax?

Put your National Insurance number on the R40 form and in any accompanying letter.

You do not need to send interest certificates and bank statements with your claim, but HMRC might ask to see them before they process the form. If so, you will probably be asked for the originals. If so, take copies for your own records first.

Your bank or building society may not give you an interest certificate automatically, but you can ask them to send you one. The bank or building society have to send you a certificate free of charge if you ask for one and they have not sent one out before.

If you have lost an interest certificate and ask the bank or building society for a duplicate, they may charge you, so it is usually best to find out first how much a duplicate interest certificate will cost.

Do I have to wait until after the end of the tax year to make a claim?

You need not wait until the end of the tax year to make a claim, though you may have to make a provisional claim and a final claim if you cannot provide the exact figures if you claim before the tax year end.

How soon will I get my repayment of tax?

HMRC do not give specific guidance as to how long a repayment claim will take to process. HMRC sometimes want to check some things before sending your repayment, as part of their aims to prevent unscrupulous people claiming tax back fraudulently.

Between April and September following the end of the tax year there may be delays as this is the most popular time for sending in the forms.
You may also have to wait longer if HMRC decide they need to see supporting information, such as, interest certificates.

If you are worried that your repayment is taking a long time to appear, you should telephone HMRC on 0300 200 3300 and have your National Insurance number to hand.

Can you explain the 0% Starting Rate for Savings and the Personal Savings Allowance?

Starting Rate for Savings (SR) - On 6 April 2015 the 10% starting rate was abolished and replaced by the 0% starting rate.

The 0% band for 2015/16, 2016/17, 2017/18 & 18/19 is £5,000. It is restricted by non- savings taxable income so that none of the band will be available if that income is above their personal allowance (& blind person’s allowance if claimed) plus the £5,000 starting rate.

Personal Savings Allowance (PSA) - On 6 April 2016 the Personal Savings Allowance was introduced, £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate tax payers aren’t eligible.

The two allowances work together and are dependent on your total taxable income.

Interest Paid Gross – From 6 April 2016 savings income will be paid gross (without tax being taken). The R85 was also discontinued.

The easiest way to establish if you qualify is to add up your non savings income, if it is below or within your personal allowance plus £5,000, £16,500 2017/18 then the Starting Rate for Savings will apply.

If this doesn’t cover all of your savings income then apply the Personal Savings Allowance. To determine which rate to use add up all of your taxable income including savings income. If it's £46,350 or less then use £1,000, if between £46,351 and £150,000, use £500. If higher it doesn't apply.

Any savings income over these amounts will be taxable at the appropriate rate and it is your responsibility to inform HMRC. Where possible the amount owed will be collected via your tax code but if this isn’t possible a self-assessment tax return will be required. Scottish Taxpayers use the UK rates and bands for Savings interest.

Gift Aid alert – People who at present, use the tax they pay on savings as part of their calculation to decide how much they can gift aid need to recalculate. Failure to do so may mean they gift aid too much and may end up with a debt to HMRC.

The following examples for 2018/19 explain the interactions between the SR and the PSA.

Example 1 - Alex is 71 and has non savings income of £11,000. In addition he receives £600 in savings income. His non savings income is below £16,850 and the savings income is within the 0% savings rate of £5,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 2 - If Alex’s non savings income is now £16,450, it is still below the £16,850 threshold and £400 of his savings income is covered by the 0% savings rate. The remaining £200 is covered by the Personal Savings Allowance. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 3 - If Alex’s non savings income plus his saving interest is between £16,851 and £46350, he will not be eligible for the 0% Starting Rate but his savings income will be covered by the Personal Savings Allowance of £1,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.

Example 4 - If Alex’s non savings income is between £46,351 and £150,000  he will not be eligible for the 0% starting rate and only £500 of his savings income will be covered by the Personal Savings Allowance. The remaining £100 is taxable at 40% and he will need to contact HMRC to arrange payment.

How do I claim back tax on savings income?

Prior to the tax year 2016/17  income from savings, for example, bank or building society interest, was normally received net of tax. This meant that the bank or building society, or other savings provider, had taken tax off before you got it. This deduction of income tax was normally at the basic rate of 20%. From April 2016 this is no longer the case and you will receive the interest gross (without tax being taken off), the responsibility then falls to you to tell HMRC if you owe any tax. Read the section on 'What tax allowances apply to me?'.

For tax years 2015/16 and earlier, if you are on a low income, you may be able to get back some or all of the tax you have paid on your interest.

We explain how to claim a refund of tax paid on savings income in this section. This section is for people who are not within self assessment, that is, people who do not have to fill in a tax return.

How do I claim back overpaid tax on savings income?

Prior to 2016/17, tax was automatically taken off the interest on UK savings at the rate of 20%. You may need to claim a repayment of tax, if any of your savings income should only have been subject to the 0% starting rate of tax for savings or should not have been taxed at all.

To claim back overpaid tax on savings income you need to fill in a form R40.

If you have already filled in a form R40 in earlier years, you should receive one automatically each tax year. The form will show the HMRC office address to which you need to send in the completed R40.

If you have not filled in a form R40 before then you can get the form online or request a copy by telephoning HMRC 0300 200 3312. The form comes with guidance notes to help you. When it is complete, send it to;

HM Revenue & Customs
PAYE
BX9 1AS

What information do I need to keep?

Keep:

  • a copy of the completed form R40 before you send it to HMRC
  • proof of postage from the Post Office recording the date you sent it to HMRC, in case of later query
  • the paperwork to support the claim for repayment for at least two years from the end of the tax year for which the claim is made
  • interest certificates and bank statements for each of your bank and building society accounts
  • paperwork relating to any other savings income, such as the interest element of a purchased life annuity
  • dividend vouchers, as you will need to include any dividends and their associated 10% tax credits on the form R40.

What information do I need to give HMRC to claim a repayment of tax?

Put your National Insurance number on the R40 form and in any accompanying letter.

You do not need to send interest certificates and bank statements with your claim, but HMRC might ask to see them before they process the form. If so, you will probably be asked for the originals. If so, take copies for your own records first.

Your bank or building society may not give you an interest certificate automatically, but you can ask them to send you one. The bank or building society have to send you a certificate free of charge if you ask for one and they have not sent one out before.

If you have lost an interest certificate and ask the bank or building society for a duplicate, they may charge you, so it is usually best to find out first how much a duplicate interest certificate will cost.

Do I have to wait until after the end of the tax year to make a claim?

You need not wait until the end of the tax year to make a claim, though you may have to make a provisional claim and a final claim if you cannot provide the exact figures if you claim before the tax year end.

How soon will I get my repayment of tax?

HMRC do not give specific guidance as to how long a repayment claim will take to process. HMRC sometimes want to check some things before sending your repayment, as part of their aims to prevent unscrupulous people claiming tax back fraudulently.

Between April and September following the end of the tax year there may be delays as this is the most popular time for sending in the forms.
You may also have to wait longer if HMRC decide they need to see supporting information, such as, interest certificates.

If you are worried that your repayment is taking a long time to appear, you should telephone HMRC on 0300 200 3300 and have your National Insurance number to hand.

How do I claim back tax if I am in self assessment?

If you are in self assessment and you overpay tax, you do not need to submit a separate claim for repayment. You claim your tax repayment through your self assessment tax return.

How do tax repayments through self assessment generally work?

If you overpay tax on your income and you complete a self assessment tax return, HMRC will deal with your repayment once they have processed your tax return.

You can state in the tax return how you would like the repayment to be paid to you. You can have it:

  • paid directly into your bank account,
  • paid to you by cheque, or
  • deducted from your next self assessment tax liability, for example, against the next tax year’s ‘payment on account’ if you are due to make one.

Alternatively, if you owe HMRC another amount, for example, a tax credits overpayment, you might ask them to ‘offset’ the repayment against that amount. This means they will take the amount you are due to be repaid off the other amount you owe. They will then repay any remaining repayment or you will have to pay the rest if you still owe some.

You complete your tax return after the end of the tax year. The sooner you submit your tax return, the sooner you will receive your repayment, or offset. If you submit your tax return online rather than on paper, it might be dealt with sooner and you will get your repayment faster (we can help you get online to complete your tax return, click HERE to find out more). HMRC sometimes also want to check some things before sending your repayment, as part of their aims to prevent unscrupulous people claiming tax back fraudulently. If you have been waiting several weeks to hear back from HMRC about your refund, we suggest you telephone them to find out what is happening.

How do I claim a refund if I made a mistake on my tax return?

Sometimes you may make a mistake on your tax return and pay too much tax.

In this situation, you need to amend or correct your tax return first. Once HMRC have processed the amended tax return, they will send you any repayment due or offset it against other amounts that you owe.

There are time limits for correcting your tax return. The normal limit is 12 months from the 31 January after the end of the tax year. For example, the normal deadline for amending your 2016/17 tax return is 31 January 2019 and a 2017/18 tax return is 31 January 2020.

How do I claim a refund if it is too late to amend my tax return?

If you made a mistake in your tax return, and paid too much tax, but only realise after the deadline for amending the tax return has passed, you may still be able to claim a repayment of overpaid tax.

In this situation you will need to write to HMRC and tell them about your mistake. You can write to HMRC using the postal address on the most recent correspondence you have from them, or to
HM Revenue & Customs
Pay As You Earn
BX9 1AS

Your letter, should:

  • give your full personal details – your name, address, national insurance number and unique taxpayer reference (‘UTR’);
  • refer to the tax year to which the repayment relates;
  • include as much information as possible about why you think you have paid too much tax and the mistake you made;
  • enclose evidence of the tax that you have paid, including copies of P60s and P45s if you have them – keep the originals;
  • say how you would like to receive any repayment – you can have it paid directly into your bank account, paid by cheque, or deducted from your next self assessment tax liability;
  • be signed and dated in ink.

Keep a copy of your letter and any enclosures and ask the Post Office for a proof of posting in case of later query.

How do I claim a tax refund?

If you have paid too much tax, or ‘overpaid’ tax, and you complete a tax return, HMRC will send you a repayment once they have processed your tax return.

If you are not within self assessment, that is, you do not complete a tax return, you can still claim back overpaid tax.

You can claim some refunds via your Personal Tax Account (PTA), go to www.gov.uk/personal-tax-account to register. Once you have an account, to claim a refund you have to search first for the form you want, for example P53Z and use this link to open your PTA.

What information is in this section?

Claiming back a straightforward overpayment of tax should usually be easy enough to do yourself. But exactly how you do it depends on the type of income you have. Choose the section that applies to you.

We also look at tax refund companies and explain why you should be careful of them..

What are the time limits for claiming back tax?

You have four years from the end of the tax year in which the overpayment arose to claim a refund, as shown below. If a claim is not made within the time limit you will lose out on any refund that may be due.

Tax year 2013/14 (year ended 5 April 2014) - claim by 5 April 2018

Tax year 2014/15 (year ended 5 April 2015) - claim by 5 April 2019

Tax year 2015/16 (year ended 5 April 2016) - claim by 5 April 2020

Tax year 2016/17 (year ended 5 April 2017) - claim by 5 April 2021

Tax year 2017/18 (year ended 5 April 2018) - claim by 5 April 2022

How do I claim back tax I have overpaid through PAYE on wages or pensions?

This section looks at what to do if you have paid too much tax on your wages or pension and what the time limits are for making a claim.

First though, we look briefly at HMRC’s P800 tax calculation process, which may mean you do not need to claim a repayment, as HMRC will issue any repayment automatically. If you have not received a P800 tax calculation from HMRC, and you have overpaid tax, you will need to make a claim for a tax repayment.

What is a P800 tax calculation?

Your employer or pension provider gives HM Revenue & Customs (‘HMRC’) details of how much income you have received, how much tax you have paid and the value of any benefits in kind you have received during the tax year.

Using this information, HMRC carry out an automatic reconciliation at the end of each tax year, to work out whether or not you have paid the right amount of tax. If HMRC think you have not paid the right amount of tax, they send you a P800 tax calculation. This calculation will show you what tax HMRC think you should have paid.

You must always check your P800 tax calculation carefully, as HMRC may not have all the information they need to calculate your tax correctly, or they may have inaccurate information.

If HMRC think you have overpaid tax, they will send you a repayment of tax automatically – you do not need to make a claim.

If HMRC think you have not paid enough tax, they will write to you explaining that they intend to collect the underpaid tax through your tax code or telling you how you can repay it to them.

For more information on what to do if you receive a P800 tax calculation, please read our section ‘When things go wrong’, ‘Complaint or Appeal’

How do I claim a refund for the current tax year?

If you receive employment income or pension income and pay tax through the PAYE system you may sometimes pay too much tax. There are various reasons for this. HMRC provide a list of typical reasons for an overpayment of income tax arising on employment income. They also provide a list of reasons why an overpayment might arise on pension income.

If you think you have overpaid tax through PAYE in the current tax year, before the end of the tax year tell HMRC why you think you have paid too much. It is probably best to telephone them initially, the helpline for individuals and employees is 0300 200 3300.

Before you telephone HMRC, you will need to gather together:

  • your personal details – such as your full name, address, date of birth and National Insurance number;
  • details of each of your employers or pension providers – their PAYE scheme reference number, which should be shown on your payslip, or ask your employer or pension provider for it;
  • estimates of your earnings and pensions from each source for the current tax year.

Make sure you keep a note, in a safe place for future reference, of:

  • the date and time of the phone call;
  • the name of the adviser you spoke to; and
  • what was said by both you and the HMRC adviser.

You may need to send in more information to support your claim and if so HMRC will let you know what paperwork you should supply.

Once HMRC process your claim it might be necessary to issue you with a new tax code, meaning any refund will be added to your wages or pension and the amount will generally be paid automatically through the payroll. This will result in a lower tax deduction or a tax refund through PAYE.

However if the repayment is due towards the end of the tax year and you have already received your final pay for that year, you may have to claim a refund directly from HMRC.

How do I claim a refund if I have stopped working part way through the tax year?

If you have stopped work part way through the tax year and are not going to have a continuing source of taxable income, for example, you are not intending to go back to work within four weeks or claiming a state benefit, you should be able to claim an in-year tax repayment using form P50.

You must send parts 2 and 3 of your P45 together with form P50 to HMRC. If you are entitled to a repayment of income tax, HMRC will send it to you – usually by cheque in the post.

You cannot use form P50 if you are claiming, or intending to claim a state benefit such as jobseeker’s allowance (‘JSA’).

If, for example, you stop work in June, having been employed at some point since the beginning of the tax year on 6 April, and you do not get another job but start to claim JSA, you will need to let Jobcentre Plus have your form P45 from that paid work. They will then put the details onto their computer. If you have already paid some tax under PAYE in the year, you will not get this refunded until the earlier of:

  • ceasing to claim JSA – in which case your refund comes from Jobcentre Plus;
  • the end of the tax year – in which case, you have to liaise direct with HMRC for your refund.

How do I claim a refund after the end of the tax year and for previous tax years?

If you have paid too much tax through your employment and the end of the tax year in which you overpaid tax has already passed you can make a claim for a refund by writing to HMRC.

Mark the top of your letter clearly with ‘repayment claim’ so that HMRC prioritise it on receipt.

You can write to HMRC using the tax office address of your current employer or the postal address on the most recent correspondence you have from HMRC. If you do not have any recent documents or letters from HMRC, write to:

HM Revenue & Customs
Pay As You Earn and SA
BX9 1AS

Generally your letter, should include:

  • give your full personal details – your name, address and national insurance number;
  • include as much information as possible about your employment history, for example, PAYE reference numbers for your employers, dates of employment, how much you earned and how much tax was deducted;
  • enclose copies of P60s and P45s if you have them – keep the originals;
  • say why you think you are due a repayment;
  • be signed and dated in ink.

Keep a copy of your letter and any enclosures and ask the Post Office for a proof of posting in case of later query.

HMRC say they usually aim to process PAYE repayments within four weeks of receipt. In some cases, HMRC will need to carry out security checks. It might help to speed up the repayment if you ask HMRC to pay it direct to your bank account. To request a direct bank transfer, include in the letter:

  • the name of the account holder(s);
  • the sort code; and
  • the account number.

But be aware that HMRC might want to make additional security checks if you request repayment into an account which is not in your own name.

In most cases you can get back the tax you have overpaid as long as you claim on time. The time limits for claiming a refund are shown in the section below. If you fail to make a claim within the time limit you will miss out on any refund due.

What can I do if I am too late to make a claim for a repayment?

Claiming back tax for 'closed' tax years - Extra-statutory Concession B41

If you think you have overpaid tax in tax years that are ‘closed’ to reclaims, there is a rule known as Extra-statutory Concession B41 which can allow HMRC to repay tax for those earlier years. This only applies in limited circumstances.

This concession only applies in situations where HMRC or another government department, such as the Department for Work and Pensions, have made an error in your tax affairs and where there is no doubt about the facts of the case.

The relevant part of the concession reads as follows:

‘....However, repayments of tax will be made in respect of claims made outside the statutory time limit where an over-payment of tax has arisen because of an error by HMRC or another Government Department, and where there is no dispute or doubt as to the facts.....'

In our experience, it is rare for HMRC to grant this concession so you will need to set out clear evidence as to what the error was, which resulted in you paying too much tax.

I have been sent an email from HMRC saying I have a refund Is this something they do?

No, HMRC never email people about refunds, you may get reminders to do something, but they will never ask you for information or ask you to use a link. It is a scam email and it is important that you do not disclose any personal information. Forward it to phishing@hmrc.gsi.gov.uk and then delete it. HMRC will not reply to you but they will take this seriously and investigate the source.

Why have I received a tax return?

HMRC issue returns to people who have untaxed sources of income, for example, rental income, foreign pensions and self employment as it cannot be taxed at source. From April 2016, people who owe tax on their savings income or dividends may need to file a tax return if the tax due cannot be taken through their tax code.

If you are in doubt as to why a tax return has been issued to you, phone your tax office 0300 200 3300 or, if your household income is below £20,000, ring the Tax Help for Older People helpline on 01308 488066 or use the email link in contact us on this website.

HMRC changed the way they collect tax due on state pensions that are higher than the personal allowance (£11,500 2017/18 & £11,850 2018/19) where it is the only income. You should  be sent a tax calculation called a PA302, check the figures against your DWP notification of state pension and follow the instructions on how to pay. If you are concerned in any way, still in self assessment or you haven't heard from HMRC contact them or Tax Help for Older People for advice.

I think HMRC owe me money, what is the deadline for claiming refunds?

You can claim back overpaid tax for up to 4 years after the end of the tax year. The deadline for;

2013/14 is 5th April 2018

2014/15 is 5th April 2019

2015/16 is 5th April 2020

2016/17 is 5th April 2021

2017/18 is 5th April 2022