I have no idea what happened here.

[windermeredave]

In April this year I took advantage of the new pension freedom rules and cashed in a old policy amounting to just over £15.000.
25% came tax free. so I paid emergency tax on £11.581 amounting to £3.749. the normal 20% tax would come to something like £2.300. a difference of around £1.400.
So to claim back the difference I printed off a P53 , and filled it out. I was asked my annual employment income before tax . I put £24.100. I was also asked if i am drawing a pension, again yes . £7.386 RM . So my total yearly income comes to aprox £31.486.
So after waiting 3 months I finally get a letter last Saturday confirming that I have indeed paid to much tax and a rebate was on it`s way to my bank account.and that they would send me the figures outlining how they worked it out. also in the letter it explained that at the end of the tax year they will check that I have paid the right amount. and then they will contact me if they need to pay me more. or if indeed I must pay them back.
So on returning from work on Monday afternoon I logged into my bank account. expecting to see about £1.400 debited to me, I was staggered to see HMRC had paid me £3.600.
I still haven`t received the figures outlining how they came up with this. but the guys are saying HMRC rarely get these things wrong. I`m not so sure myself and it looks like I could be getting a rather large tax bill next April.
Any experts out there?

[RobertT]

What often happens is that when someone receives a large one-off payment from a pension or redundancy for example, is that HMRC assumes that is your normal monthly pay and taxes you accordingly.

In your case they thought the £11,581 plus your normal wages & pension is what you get every month – that would equate to an annual income of about £170,000, so for that month you may well have not only got yourself into the 40% tax band but the 45% band aswell.

It’s also possible with having two incomes, that you may have also been paying too much tax beforehand anyway and that accounts for some of the refund.

[windermeredave]

What often happens is that when someone receives a large one-off payment from a pension or redundancy for example, is that HMRC assumes that is your normal monthly pay and taxes you accordingly.

In your case they thought the £11,581 plus your normal wages & pension is what you get every month – that would equate to an annual income of about £170,000, so for that month you may well have not only got yourself into the 40% tax band but the 45% band aswell.

It’s also possible with having two incomes, that you may have also been paying too much tax beforehand anyway and that accounts for some of the refund.

Cheers for that Robert. that clears it up in some way. so would you have any idea how much I will get hit for next April. can I trust them to get it right? I`ve worked it out that I may owe them something like £2.300.
They are not likely to think I have a 170k income at the end of the tax year are they?

[bogstandard]

What often happens is that when someone receives a large one-off payment from a pension or redundancy for example, is that HMRC assumes that is your normal monthly pay and taxes you accordingly.

In your case they thought the £11,581 plus your normal wages & pension is what you get every month – that would equate to an annual income of about £170,000, so for that month you may well have not only got yourself into the 40% tax band but the 45% band aswell.

It’s also possible with having two incomes, that you may have also been paying too much tax beforehand anyway and that accounts for some of the refund.

by chance i looked at this thread and am glad i did thank you for the information RobertT

[RobertT]

What often happens is that when someone receives a large one-off payment from a pension or redundancy for example, is that HMRC assumes that is your normal monthly pay and taxes you accordingly.

In your case they thought the £11,581 plus your normal wages & pension is what you get every month – that would equate to an annual income of about £170,000, so for that month you may well have not only got yourself into the 40% tax band but the 45% band aswell.

It’s also possible with having two incomes, that you may have also been paying too much tax beforehand anyway and that accounts for some of the refund.

Cheers for that Robert. that clears it up in some way. so would you have any idea how much I will get hit for next April. can I trust them to get it right? I`ve worked it out that I may owe them something like £2.300.
They are not likely to think I have a 170k income at the end of the tax year are they?

The fact that you got back nearly as much tax as you’d paid originally is confusing and would suggest that you effectively haven’t paid tax on your pension at all. As I said in my other post, it’s possible you’ve actually been paying too much tax over a period of time and things have now been evened out, but the figures seem quite large for that.

When someone receives a payout or retires their tax affairs can often get themselves in a muddle and it can take a while for it all to settle down. I know of someone who’s been retired over a year now and has recently got a tax refund because he’s been paying too much all that time!

On the face of it your figures seem about right so it’s possible that HMRC have made a mistake along the way and you may face a big bill in due course, so if I was you I’d put some money to one side just in case.

Please keep us informed.

[windermeredave]

My calculations for this is for my tax year 2015/16.
£31.436 annual income. minus my peronal allowance of £10.600=£20.836.
20% tax on that is £4.166, add to that £3.749 emergency tax I paid and it comes to £7.915.
take away the tax rebate they paid me and we have £4.315.
So given the correct tax on my lump sum of £2.300, and the £4.166 (£6.466) on my income the difference should be around £2.151. which I should owe them

[glenfiddich]

I'd buy a load of premium bonds with it then if they ask for it back in April its there and maybe you'll hit the big one

[bustedflush]

I can see what's happened here. (I think!)

They've applied your WHOLE £10,500 + RM laundry 2015-16 tax-free allowance to your pension lump sum solely hence you've paid 20% on the remaining several hundred from the 11k+ you cashed in.

It does add-up approximately but I hope they haven't made that error as you would have no weekly tax-free allowance left for the rest of this financial year so could owe them at the end.