Tax Help Section

Pensioners Paying Too Much Tax? IR to Blame?

March 2005

A new report from the excellent Low Incomes Tax Reform Group has indicated that pensioners are paying too much tax and missing out on benefits because of "inadequate" tax guidance.

The LITRG states that the Inland Revenue is simply not doing enough to make sure pensioners complete tax form P161 (see Helpful Links below as to where to get the form). Pensioners need to fill out the P161 in order to make sure they don't miss out on far better personal tax allowances.

However, the Inland Revenue has defended the advice it issues.

What Is the P161 Tax Form?

• The P161 tax form should be filled out just before the state pension age (65 for men, 60 for women unless married then they have to wait until the husband is 60) to ensure tax is deducted correctly
• Failure to fill out the form can in certain circumstances mean that pensioners miss out on the higher personal allowances that the elderly are entitled to
• These tax allowances for the 2005-2006 tax year are £7,090 for those aged 65-74 and £7,220 for the over 75s
• The allowances are far better than the standard personal allowance which is currently £4,895

Check Your Tax Codes

• Pensioners should check to ensure they are receiving the right personal allowance through their personal tax code
• If for example a person is receiving the basic personal allowance their tax code will have the letter L in it
• But aged between 65-74 the tax-code will have a letter P in it
• Full details of personal allowances and tax codes are available from the Inland Revenue website, listed below

How To Get Your P161?

• The P161 form is computer-generated and sent by the Inland Revenue
• However, it is only issued if the Revenue receives notification by the Department for Work and Pensions that the person is question is due to reach state pension age

LITRG Gripes

• But the LITRG report that the form is sometimes issued to women well after and in some cases many years after they first started to receive their pension
• In this case many of the women were unlikely to complete it as it dealt with issues before a pension was to be paid
• The LITRG is calling for the form to be revised and for better Help literature on the whole issue of retirement, tax and money
• The Inland Revenue as ever states it's doing enough to help pensioners but also add that they are continually reviewing their communication processes especially with the older generation
• If in doubt, call the Inland Revenue Help Line, see website below

See Also

• Low Incomes Tax Reform Group
• The Pension Service - Good govt website for pension helps and advice
• Inland Revenue