The majority of pensioners need all the financial help they can get so here's some quick and easy information to see if you're paying too much tax on your pension and/or state benefits.

It All Revolves Around The Form P161

A few weeks before a man hits 65 years, or a women 60 they'll receive a computer generated tax form called the P161. This is sent by the Inland Revenue (now actually called HM Revenue & Customs) and asks for information such as -

• When you're stopping work
• Will start to receive the state pension (men can start at 65 but don't have to take it, if they wait 1,2 or even more years they'll receive more money per week)
• Any other pension income
• Are looking to take a part-time job etc

The form actually makes a lot of sense because for many people when they hit their 60s a lot of financial changes happen. But many older tax-payers don't actually understand the form or indeed why they've been sent it in the first place. Also, some will fill it in incorrectly or even dump it in the bin as soon as it drops through the letterbox.

So if the Inland Revenue receives an incorrect P161 or never receives one then there's a good chance a pensioners tax code will be wrong. Sods law therefore states that a wrong tax code will mean the payment of too much tax.

So What's The Main Problem With This P161

• When you get retirement age (65 for men, 60 for women) your personal tax allowances get greatly increased
• For the 2005-2006 pensioners aged 65-74 for men get a tax free allowance increase to £7,090 which rises to £7,220 when 75+
• To put this in perspective if you're under 65 (and male) the non-taxable allowance is only £4,895
• So with an incorrect form P161 it's very possible that you'll be in the wrong tax band and therefore in the wrong non-taxable band

What To Do If You Have A Problem

If you have an accountant or other financial type advisor that looks after your tax send them the P161 form because they'll know all about it and how to fill it out in regards to your personal financial situation.

But if you don't have an accountant or financial advisor, do one or all of the following -

1. If you're not sure about the form P161 or how to fill it out then get in contact with HM Revenue & Customs Enquiry Centre. They can either help you on the phone or set up a face to face meeting at your local tax office
2. If you've already sent your P161 form back but are unsure if it's correct then contact the Inland Revenue via this website link
3. Think about contacting the excellent low Income Tax reform Group (LITRG) because they have a special helpline and service that caters for Pensioners - details on their website

The good news within all of this is that you have been paying too much tax or your tax band is not correct ALL over-payments can be reclaimed for a maximum of 5 years

Summary

One of the problems with tax in the UK is that it's far too complicated for most people and this is especially the case for pensioners with forms such as P161 together with their financial circumstances changing as they retire.

This is why the form P161 is not only so important but critical to fill out correctly. Many people don't mind paying tax (within reason) but it's the payment of tax that's not even which is the real scandal for the older generation so try and make sure it doesn't happen to you.

Good luck with your P161

Useful Links

• Inland Revenue website (Now called HM Revenue & Customs)
• Understanding your Tax Code (HM Revenue & Customs)
• Low Income Tax Reform Group (LITRG) - FREE tax guide for Pensioners