Income Tax

[Finbar23]

If I have a pension of £18000 a year and a job which pays £18000 a year how is tax deducted.

[fiction-factory]

Your income in a full tax year would be £36000. The first £10600 (I think that's the figure- check with HMRC site) is normally tax free (but may differ if your tax code is different) ; you would then be due to pay 20% on the remainder. It will be deducted from your job or your pension- probably both. You should have a tax code for the employer and pension provider. I'm assuming it's a private pension- if some is state pension that is still taxable but the tax is not taken at source, it's reflected in your tax codes

[Buenchico]

The usual way to do it would be for your personal allowance to be allocated to your job. So you'd have £10,600 of your work income free of tax, leaving you to pay tax at 20% on £7,400 = £1,480 tax.

Meanwhile the whole of your £18,000 pension would be taxed at 20% = £3,600 tax.

[ubasses]

As FF says you will pay tax on your total income less your personal allowance, but all the tax will be deducted from your salary and your pension will be paid gross. Your tax code will be adjusted to take this into account.http://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/how-is-my-state-pension-taxed.
Scroll down to pension another incomes.

[Jackdaw33]

My personal allowance was allocated to my pension and I had a BR coding for my job.

[Buenchico]

If that's the way that HMRC decide to handle Finbar23's tax, JD33, my figures simply need to be reversed.

Either way, it comes down to one element of the income being allocated the personal tax allowance and the other one being given no allowance. (The allowance can theoretically be split but that would normally only happen when both sources of income fell short of the full value of the allowance).

[Jackdaw33]

That might have been because at the time I first received my pension I wasn't working.

[Peter Pedant]

answer removed - christ what did he write ?

This is a common problem for pensioners and needless to say the tax man always gets his tax

My pension is taxed with a D0 code which means I pay 40% tax on it and then for the other income I fill out a form and it is equalised by that generous tax man ( I may mean reconciled ) on Jan 31st of each year

AND you will notice that he is getting his whack in real time
perhaps a little more
and then there is pay back - perhaps quite a lot in January

as for the new system of Real Time Information o forget it - it seems not to apply to me

I was told the way he was collecting tax was at his whim and I couldnt get off the D0 system until he opted to do so - eventually he did

[New Judge]

The usual method for dealing with your situation is for your employer to be provided with the tax code to cover your allowances (1060 without any special allowances or deductions) and for your pension provider to be instructed to deduct tax at the basic rate (20% - tax code BR) from all of your pension. This means that you should pay tax on (£18,000 - £10,600 = £7,400) at 20% from your employment earnings and tax at 20% on all £18k of your pension. It is unlikely that your tax code will be adjusted to allow for your pension. It complicates matters unnecessarily and means that your tax code would have to change if your pension changed.

I assume that your pension is an occupational pension and does not incorporate an element of State Pension. State Pension is paid free of tax but forms part of your taxable income. State pensioners have their tax codes adjusted downwards to collect the tax due from the State Pension.

Also remember that you will pay National Insurance on your pay but not on your pension.