HMRC urges you to declare accurately every figure on your tax return, but the Department for Work and Pensions (DWP), which pays state retirement pensions, doesn’t make this easy.
Payers of occupational pensions issue a P60 certificate every year to show exactly what amount of pension has been paid and taxed during the tax year, but the DWP doesn’t do this.
The state pension is taxable, but the DWP doesn’t issue a P60 certificate. Instead, the DWP will send you a letter before the beginning of the tax year, which tells you the weekly amount of state pension you are entitled to at the new rate for the year.
The annual increase in value of the state pension occurs on the day after the weekly payment day in the first full week on the tax year, not on the first day of the tax year. To calculate the amount of state pension you should declare on your return, take one or two weeks at the old rate plus 50 or 51 weeks at the increased rate, depending on the day of the week your pension is paid. It is easy to get this wrong!
Note that this may not match the cash amount you actually receive during the tax year. The state pension is paid every four weekly instalments, not monthly, so there will be 13 payments in a tax year, or 14 if the first pensions pay day falls on 6 April.
We can help you make sure that your pension income is correctly declared for tax purposes.
