Where can I look up my coding notification?
The information below does not apply to the state pension, which is paid in its entirety (that is, without deduction of tax at source - no tax is deducted before it is paid to you).
How does PAYE function?
The employment section contains general information on how PAYE works for both employees and pensioners. This page examines some pensioner-specific issues.
What happens when I begin receiving a pension?
When you start receiving a pension for the first time, HMRC cannot determine your tax code until they receive some information from you or your pension provider.
If you have just stopped working and are starting to take a pension, you may have a form P45 to give to your pension provider.
If you do not have a form P45, your pension provider should send details of your new pension to HMRC directly through the electronic PAYE system. You will not see this as a pensioner because the pension company submits the information directly to HMRC.
What exactly are pay stubs?
If you receive a pension, you usually do not receive a payslip with each pension payment. However, you should be notified if the amount of your pension payment changes, for example, if your tax code changes.
What happens at the end of the fiscal year?
As long as you are receiving a pension on April 5, the end of the fiscal year, your pension provider will provide you with an 'end of year certificate' - form P60 or its equivalent - by May 31. This could be delivered electronically rather than on paper. This displays the total amount paid during the fiscal year, the tax deducted, and the final tax code in effect. You should double-check that the PAYE code on the form is correct.
Every time your pension provider pays you, they report to HMRC how much they have paid you and how much tax they have deducted. Following the end of the fiscal year, HMRC verifies that the tax deducted is the correct amount based on their calculations and the information they have. If so, no further action is likely to be required. HMRC will contact you if their calculations show that the correct tax has not been deducted.
More information about reconciliations that show you owe tax or are due a refund can be found in the employment section.
What exactly is an emergency tax code?
Our section on employment explains when an emergency tax code may be used. This is common when starting a new job.
When taxing money taken out of pensions under the flexible pensions rules, emergency codes can also be used. This could be the case if you withdraw money in lump sums (rather than as pension income), either on a regular or irregular basis, or if you withdraw the entire amount of a pension pot as a lump sum. You should be cautious because you may fail to pay the correct tax at the correct time. Please see our separate guidance on this.
Who receives a PAYE coding notice?
In the employment section, there is general information for employees and pensioners about who receives a PAYE coding notice. You should only receive one coding notice for all of your PAYE-taxed income sources.
HMRC usually sends this to you in February for the tax year beginning on April 6, the following year. If you do not receive one, contact HMRC and request one.
Pensioners may receive coding notices more frequently than employees, such as if you begin to draw a new source of pension income to which PAYE is applied for the first time.
How can I verify my PAYE coding notice?
In the employment section, there is information for employees and pensioners on how to check your PAYE coding notice.
You should check your PAYE code and how much tax your pension payer deducts from your income. In most cases, you will receive a paper 'coding notice' (also known as a form P2) in the mail, which will explain your PAYE code(s). Typically, it will look like this:
LITRG has issued a PAYE coding notice.
If you do not understand your PAYE code or believe it is incorrect, you should contact HMRC. GOV.UK has information on how to contact HMRC.
Pensioners may receive multiple pensions from the same pension provider. If this is the case, make sure you have a code number for each pension – they may have different PAYE scheme reference numbers, for example. The codes should all be on the same coding notice. If you require further clarification, please contact HMRC.
Notes on each component of the tax code calculation
Every item in the tax code calculation is noted in the coding notice. These notes are intended to assist you in checking your tax code, but the way tax rules work makes this not always simple. More information can be found in the employment section.
Gift Aid contributions are made after deducting the basic rate of tax. For example, if you make an £80 net Gift Aid donation (paying £80 in cash or electronically), the charity will reclaim the basic rate tax paid on that donation from HMRC. which will be £20 in this case (as £100 less 20% basic rate tax equals £80). In effect, you have donated £100 to the charity from your pre-tax income.
If you only pay basic rate tax in the UK, there is nothing else to do (although see below if you also claim married couple's allowance) and no changes to your tax code are required.
If you pay tax at the UK higher rate (40%), for example, the same £80 donation to the charity under Gift Aid will result in the charity reclaiming £20 from HMRC (for a total of £100). However, because you will have paid £40 in tax (£100 at 40%) on the gross amount, you are entitled to an additional £20 relief.
Strictly speaking, this is accomplished by increasing the amount of income subject to basic rate taxation by extending your basic rate band. However, tax relief can be obtained in-year by increasing the personal allowance - in this case by £50 (meaning that £50 of income is tax-free rather than taxed at 40%, saving £20). If you are a higher-rate taxpayer in the United Kingdom, you may notice this change in your tax code.
Allowance for a married couple
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%, if you are a UK basic rate taxpayer, 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 with an income of £19,880 in 2022/23, your tax relief for married couple's allowance will be £9,415 multiplied by 10% = £941. 50
However, the calculation box in your coding notice would look like this:
This is how we calculated your tax code(s):
Allowance for personal expenses
£12,570 (please see Note 1 below)
Allowance for a married couple
£4,708 (please see Note 2 below)
Reduced state pension
- £8,625 (see Note 3).
A tax-free sum of
= £8,653 (see Note 4).
Having £4,708 in your coding saves you £941 in tax at 20%. 60 This is roughly equivalent to £9,415 at 10%.
Allowance for married couples and Gift Aid
If you or your spouse or civil partner were born before April 6, 1935 and claim married couple's allowance, having an income of more than £31,400 (for 2022/23) will limit your claim. However, when calculating your income to test against the threshold, you must deduct your gross Gift Aid contributions. As a result, if you claim married couples' allowance with an income above the threshold, making Gift Aid contributions will increase the amount of allowance you are entitled to, resulting in a lower tax bill.
For example, if your taxable income is £32,000 and you qualify for married couple's allowance, a net Gift Aid contribution of £80 lowers your income to be tested against the married couple's allowance threshold by £100 (£80 plus the £20 tax reclaimed by the charity). This will increase your married couple's allowance by £50 (because the married couple's allowance is limited to half of the difference between income and the threshold), resulting in a £5 reduction in your tax bill because the relief is calculated at 10%.
This tax relief should be reflected in your tax code. As previously stated, tax codes work by adjusting your personal allowance. If you are a UK basic rate taxpayer, a £25 increase in your personal allowance is required to provide tax relief of £5 (£25 of income tax-free rather than taxed at 20% saves tax at £5). This change should be reflected in your tax code. If you don't, you can request that HMRC include it.
Here's an example to help you figure out what your tax should be based on the tax code. More examples can be found in the employment section.
Tom: monthly pension - calculating tax based on code number
Tom, a non-Scottish taxpayer, receives an occupational pension of £14,300 per year before taxes are deducted. His pension is paid monthly, and his 2022/23 code number is 205L.
This means Tom has a tax-free allowance of £205 multiplied by ten, or £2,050.
Take away the tax-free allowances.
Tom's pension, on which he pays taxes
Tax is due.
£12,250 at a basic rate of 20%
So Tom's tax bill for 2022/23 will be £2,450.
He will pay £2,450 in tax per month divided by 12 = £204. 17
His personal allowance of £12,570 for 2022/23 has been reduced by £10,520 due to the code 205L. This is most likely because his state pension is taxed using this PAYE code. Tom should double-check that the amount of state pension he expects to receive in 2022/23 is £10,520. He can do this by comparing it to the weekly amount he will receive beginning in April 2022, which the Department of Work and Pensions should have informed him of via letter around March 2022. Also see: How much of a state pension is taxable?
Where can I find additional information?
You may be able to withdraw money from some types of pensions on a flexible basis, or you may be able to withdraw the entirety of your pension as a lump sum. In that case, you should read our flexible pensions guide.
Look at How is my tax collected? for more information on how tax on your state pension is collected.
Sometimes people face specific issues with their tax code when they retire. More information can be found on the page Tax Code Issues in Retirement.
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