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State pensions are taxable, but on what amount?

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Like many other people in receipt of a state pension liable to income tax together with other income I sit down some time after 5 April annually and add up the 13 x 4 weekly payments of state pension I have received in the previous year to enter in my self-assessment return so the tax thereon is either coded for PAYE against other occupational pensions or assessed to income tax, because of course the DWP does not operate PAYE on state pensions.

I did this for the year 2020/21 and awaited the usual calculation of my tax liability from HMRC on the basis that any underpayment would be collected by coding against one of my occupational pensions or a repayment made of any overpayment. In July 2021, I received a tax calculation for 2020/21 from HMRC PAYE & Self-assessment, but the amount of state pension included was £25 more than I had actually received.

So I wrote to HMRC showing how the amount received was made up, i.e. one four weekly payment at a slightly increased rate in April 2020 plus 12 four weekly subsequent payments at the fully increased rate.

DWP figures

HMRC replied in September that it was unable to amend the figure for state pension for 2020/21 because this was reported to it by the DWP and it was unable to amend this figure. Undaunted, I wrote in October 2021 to the DWP with copies of my correspondence with HMRC plus a copy of my bank statements confirming the amounts of state pension received.

No reply from the DWP was received to my letter until 4 April 2022, despite reminders and a threat to go to the Parliamentary Ombudsman if no reply was forthcoming. I received an abject apology for the delay with an explanation of the state pension reported to HMRC. This set out how its figure for state pension was calculated for the financial year ended 5 April 2021 and thus reported to HMRC ‘though the payments didn’t reach your account precisely in the financial year’.

Well, I’m blessed: the DWP is operating the earnings basis instead of reporting the amount assessable on the receipts basis! Correct me if I am wrong, but the earnings basis for Schedule E went out and the receipts basis came in when self-assessment commenced all those years ago. So I must confess I was somewhat taken aback, but there was only £25 involved and I was not that keen on taking the matter further because of the time and effort it would take one solitary taxpayer getting two government departments to sort things out.


Leave it there I thought, but my old enquiring mind inculcated by many years working for the Inland Revenue got the better of me.

I could not be alone in this position, I thought. Surely the DWP cannot have singled me out for such unique treatment. Probably not, because its reply of 4 April was sent by its customer care adviser. Many recipients of state pensions have other sources of income, so their state pensions would be taxable – and the difference between DWP reported amounts of state pensions and amounts actually received therefrom could well be more than the paltry £25 in my case.

In fact, together with SERPS and the state pensions increase having full effect nearer the end of April rather than 6 April (meaning up to four weeks of the increase in state pensions would not have been paid until say 30 April), around £100 might be wrongly taxed and some taxpayers could be liable at 40% income tax with a consequent tax overpayment of £40.

Also, what about years earlier than 2020/21? 

What should be done?

There is a point of principle involved here that needs settling between two government departments. The DWP is apparently reporting the wrong amounts: the correct figures would have been reported if a form P60 had been involved, but as I said earlier the DWP does not operate PAYE so does not issue P60s. I have lost all my contacts with HMRC HQ and know no one at DWP HQ or HM Treasury to approach. I no longer belong to any professional association who could take up the reins for me.  

I could approach my MP, but my instincts told me that writing to Tax Journal was more likely to be fruitful and the editor would surely remember me. This might hopefully produce similar stories from elsewhere and maybe establish how widespread the DWP’s misreporting was. Clearly, the DWP needs to be corrected as to the right amounts of state pension to be reported to HMRC.

So, readers if you have come across this problem regarding 2020/21 or earlier years, please let me know and what success you have had if any, or if you know any professional association that has taken up the matter. An email to John Hayward at (or a comment below) would be gratefully welcomed. 

John Hayward, retired pensions consultant and former editorial board member

Editor's note

We thank the author for raising this question and for a reader referring us to ITEPA 2003 s 578 (which states that '... the taxable pension income for a tax year is the full amount of the pension, benefit or allowance accruing in that year irrespective of when any amount is actually paid'). Another of life's mysteries solved. 

Reader response

I read with interest Mr Hayward’s tale, but I was puzzled by this remark: 'HMRC replied in September that it was unable to amend the figure for state pension for 2020/21 because this was reported to it by the DWP and it was unable to amend this figure.'

It seems plain to me that Mr Hayward had made a timely objection to a correction made by HMRC to his return and thus the correction has no effect (TMA 1970 s 9ZB(4)) - the opposite to what HMRC apparently said to Mr Hayward. If HMRC still considered the correction to be correct, it should have opened an s 9A enquiry save that the amount of tax at stake wouldn’t have warranted an enquiry.

Incidentally, It’s impossible for taxpayers to comply with s 9ZB(5)(a) as the officer at 9ZB(1) is never named on the calculation issued by HMRC, a practice now apparently permitted by FA 2020 s 103.

Duncan Cameron, Bernard Rogers & Co