31 May 2017
Hundreds of thousands of people receiving company and personal pensions are being urged to check their tax code to make sure that they are not being over-taxed.
Mutual insurer Royal London says over-taxation may be a particular issue for those who have multiple sources of taxable income such as a wage and a pension or pensions.
Royal London director of policy Steve Webb said: “Most people are understandably baffled by the whole system of tax codes.
Employers and pension providers are issued with tax codes by HM Revenue and Customs and we generally assume they must be right.
"But HMRC can get things wrong and it is important that individuals understand their tax code and know how to spot mistakes and get things put right.
"Although computerisation of tax records is designed to help improve things, I have no doubt that there are many people still paying the wrong amount of tax who should check their tax code as a matter of urgency.”
Paddy Millard, founder of the charity Tax Help for Older People, added: "Tax codes are probably one of the biggest single causes of confusion and problems amongst the people who contact us via our helpline.
"People should not simply assume that HMRC have got things right, but should check to make sure that they are paying the right amount of tax.”
Royal London says it is estimated that there are around 30million people in the UK who pay Income Tax, but only around 10million of these fill in a tax return. For the rest, the pay-as-you-earn system, built around the use of tax codes, is designed to collect the right amount of tax over the course of the year.
But the insurer adds that if tax codes are incorrect, the wrong amount of tax will be collected. Where errors have been made, these can sometimes go uncorrected year-after-year, and individuals may be able to claim refunds for more than one year.
Following sweeping pension reforms in 2015, there is more scope than ever to arrange your finances the way you want them.
For example, you can now continue to work and take some of your pension benefits – and can even access your entire pension savings and draw up your own investment strategy.
That flexibility is great, but there is a lot to weigh up when considering whether to touch your pension. It may be in your best interests to stay in your defined benefit scheme - obtaining professional advice is therefore crucial.
Aberdein Considine’s independent financial advisers - who are authorised and regulated by the Financial Conduct Authority (FCA) - can guide you through the pension maze and help you tailor a plan to your circumstances.