Those of you who pay tax via ‘Pay As You Earn’ (PAYE) should receive your new tax codes from HMRC this month. This may not happen if your affairs are simple, for example you only have one source of income, but it is still important to check that your first pay slip has a new code. To help with the checking, here are the new personal allowances for 2014/15:-
Born after 5 April 1948 £10,000
Born after 5 April 1938 but before 6 April 1948 £10,500
Born before 6 April 1938 £10,660
Married Couple’s Allowance £8,165 (£4,083 on notice of coding to allow for 10% relief)
Blind Person’s Allowance £2,230
It is easy to check when you have only one source of income and don’t receive anything else that affects your code, such as work related benefits. You just knock off the last digit to find your new code. For example, from April 2014 a person aged 61 (born 1953) with one employer/pension provider will have a tax code of 1000L. Don’t worry too much about the letters; they are used by HMRC to communicate with employers and pension providers. However, if you have more than one source of income, other allowances or benefits, or possibly even both, then things start to get more complicated and problems can arise. An example will, hopefully, help to explain this better.
Mr. Biggs is 80 (born 1933) and married. He receives a state pension of £6,000, an occupational pension of £9,000 and a small annuity of £1,500. He will need two tax codes, one for his larger pension that takes account of his married couple’s allowance and his state pension (which cannot be taxed at source) and one for his small annuity. These are calculated as follows. His personal allowance is £10,660. To this we add his married couples allowance (only half because the allowance is given at 10% and not at the basic tax rate of 20%) to give him a tax free allowance of £14,743. From this we deduct his £6,000 state pension (because it is the only way it can be taxed) which leaves him with a tax free amount of £8,743. Then remove the end digit to give him a tax code of 874T which is applied to his occupational pension. But what happens to the annuity? As all of his allowances have been used to calculate the code for his larger pension, anything else will be taxed at 20% and the code given in this particular case would be BR (which stands for ‘basic rate’).
If you usually complete a self assessment tax return, did you file your 2012/13 return by 31st January 2014? Did you pay what was owed by the same date? If not, you will probably be opening a penalty notice this month and if you filed after 30th December 2013 you are also too late to pay your tax via the 2014/15 tax codes. Failure to file your 2012/13 tax return and pay what you owe by the 31st January (if not coded) will mean you receive a late filing penalty of £100 and interest will start accruing. Those who usually file on paper will find that the £10 a day penalties also kick in. Now is the time to ask for help if you need it. You may be able to appeal if you have a good reason for not complying.
This article is by Tax Help for Older People (operated by registered charity no 1102276), offering free tax advice to older people on lower incomes. The Helpline number is 0845 601 3321 or geographical 01308 488066.