This post won't be what you might expect at first glance, given the title that is. As some of you will know, I volunteer for the tax charity Tax Help for Older People, or TOP as it's affectionately known.
TOP is a charity providing free, independent and expert help and advice for older people on lower incomes who cannot afford to pay for professional tax advice. With over 450 volunteers and a national call centre, it doesn't matter where you live. They provide a caring and friendly help and advice service on personal tax issues through their own expert advisers that is jargon-free, independent, confidential and individual to your needs. More details of the charity, and what they do can be found here www.taxvol.org.uk
There are two main issues that I come across time and time again when I am volunteering my services for TOP clients and both relate to tax coding issues.
Married Couples Allowance (MCA) is an amount that is taken off your tax bill - so it only applies if you pay tax. If you don't pay tax, or if your tax bill isn't high enough to use up all of your MCA, you can transfer any unused allowance to your spouse or civil partner if they pay tax.If you are married and living together and at least one spouse was born before 6 April 1935, the husband can claim MCA. HM Revenue & Customs (HMRC) reduces your tax bill by 10 per cent of the MCA to which you're entitled.
The problem here arises where the spouse of the person claiming MCA passes away, and either their state pension alone, or with other personal pensions exceeds the Personal Allowance for income tax (currently £10,660 for those qualifying for MCA). In most circumstances HMRC will update their records correctly and remove the MCA from the surviving spouses tax code in the following year, but I have seen a number of cases where this is not done. The result is that the surviving spouse continues to benefit from MCA, and so doesn't pay the correct income tax. Now, although this is a HMRC error, they will still ask you to pay the tax due as it is your responsibility to challenge anything that may be wrong. So, if your spouse (or civil partner) has recently passed away and you were in receipt of MCA, get it checked out!
The second problem, which is far more common, usually arises in the year in which you start to receive your state pension. Now this can occur as a result of a number of issues, mainly centered around ceasing (or in some cases continuing) employment, or drawing a personal pension alongside the state one. Again, this is an issue caused by errors in tax coding. Unfortunately, a lot of people are oblivious to the fact that state pension is actually taxable. However, this will never affect most people, as their income (including state pension) will be below the personal allowance in retirement. Where people can get caught out is upon the receipt of an enhanced widow's pension following the death of a spouse, or upon state retirement age when their tax status changes. The message here is, if something has affected your state pension, either by drawing it, or an increase related to the death of your partner, get someone to look at your coding for you.
Both of these problems are easily remedied (usually over the phone these days), so don't worry about them, but do take action.
