Tax Rebate

[weecalf]

If you retire before the end of the financial are you entitle to claim for tax rebate

[bhg481]

Yes. It should come to you automatically in the following tax year but bear in mind that pensions (inc state pension) are taxable.

[woofgang]

In the Uk, assuming your tax code assumes a whole years work and if your income drops then yes. I got a tax rebate because I only worked part of my final year and had no income for the rest of the year

[fiction-factory]

I think at this late stage in the tax year it'll probably not get sorted fully before the end of the tax year which is 10 weeks away. As your income from work stops you will stop paying tax and if there is a p45 and you have some new income (not state pension) and correct tax code then you may pay no more tax or even get small refunds at end Feb and end March but it may take longer. If you have state pension that is part of taxable income but isn't taxed at source so there may be some tax due on that which cancels out some of the rebate due. It is unlikely HMRC will give a full refund now in one go as there is no guarantee you will get no more income

[New Judge]

Income Tax is calculated on a monthly (or weekly, depending how you are paid) basis. The process for calculating it looks at the cumulative pay to the month/week in question and the tax due on that amount. It then looks at the tax you have paid so far in the year and charges you the difference between what you have paid and what is due. This means that (bar complications caused by the State Pension) tax is only deducted which is due on the money earned so far in the year. However, should you stop working (say) after six months you will have paid too much tax. This is because the tax deduction tables used to make the calculations assume you will continue to earn money for twelve months of the year.

It may be easier to understand if we look at some examples. Let’s assume your full year’s salary is £18,000. Your personal tax allowance is currently £11,000. Firstly, a full year’s work with no State Pension complication:

Full year’s Salary: £18,000
Personal Allowance: £11,000
Taxable Pay: £7,000
Tax Payable: £1,400 (You will be stopped £116.67 per month to collect this)

Now assume you stop work after six months:

Half Year’s Salary: £9,000
Personal Allowance: £11,000
Taxable Pay: £0 (You have earned less than your Personal Allowance)
Tax Paid: £700 (You will still have been stopped £116.67 per month. Since you have a tax liability of Nil it will all be refunded)

The State Pension introduces a complication because, as has been said it is taxable but paid without tax being deducted. The tax is collected by reducing your personal allowance (indicated by your tax code) by the amount of your State Pension. So let’s assume you still have your £18,000pa salary but now also have a State Pension of £6,000. Your personal allowance will be reduced by £6,000, making it £5,000. So, if you work a whole year:

Full year’s Salary: £18,000
Personal Allowance: £5,000
Taxable Pay: £13,000
Tax Payable: £2,600 (You will be stopped £216.67 per month to collect this)

You will note that the difference between Tax Payable in this example and the first one above is £1,200. This is the 20% tax due on your £6k State Pension.

Now let’s see what happens if you stop work after six months (but obviously continue to receive your State Pension)

Half year’s Salary: £9,000
Personal Allowance: £5,000
Taxable Pay: £4,000
Tax Payable: £800
Tax Paid: £1,300 (You will still have been stopped £216.67 per month for six months, so you will have £500 to be refunded)

The taxman would have you think all this is very complex and far too difficult for us to work out. But it’s not. It’s simple arithmetic and if the right steps are taken in the right order, anyone can do it.

[Peter Pedant]

erm magisterial command of tax affairs NJ

I think he was wondering if he could erm claim and get a tax rebate early and perhaps live on it....and basically it has to be done with the usual time scale doesnt he ?