Individuals who are currently on pension would be most interested in learning about the use of a P55 form (it is not to be confused with the P45, P53Z or the P50Z forms as each one have their unique purposes). Through this blog post, we will not only explore the uses of a P55 form and its importance during the next tax term but also discuss other relevant topics related to the calculation of income tax and details of tax codes as well as view a generic outlook of the taxation system in the UK

What Is A P55 Form Used For?

The P55 is a repayment claim form introduced by HM Revenue and Customs for the tax year 2021-22. The purpose of this form is for UK taxpayers to reclaim overpaid taxes while withdrawing funds from their pension.

This form is only to be used if claimants:

  • do not have a P45
  • are not employed to work
  • are not claiming benefits

When you make withdrawals from your pension, the first 25 per cent of the amount is tax-free. However, if you make withdrawals in excess of this amount (which was quite common during the pandemic due to financial challenges), you will be taxed at a higher tax rate which is called emergency tax. If you believe that you have paid more tax than you are supposed to, you can reclaim the excess amount by filing a P55 form. 

To access the P55 form online, claimants can use their Government Gateway user ID and password. If they don’t have one, they can register for the same.

The P55 form can be filled out online or by taking a printout and should be submitted to the HMRC by overtaxed individuals who fulfil the following conditions regarding a withdrawal from their pension pot: 

  • they have withdrawn a part of their pension
  • they will not be making regular withdrawals
  • their pension body has not made a refund

As a basic taxpayer, you would have been taxed at 40 per cent for making withdrawals from your pension. By filling in the P55, you are making a repayment claim to the HMRC to be repaid the excess tax deduction. If you fail to do so, you will have to wait until the end of the tax year for HMRC to pay back this amount. 

Claimants are encouraged to use the most accurate information while filling out the form. In case they do not remember the exact digits, they should round them off to the nearest figure. They should also include any anticipated incomes for the ongoing tax year in this form. 

When information shared by claimants is correct, the payments made by HMRC will also be accurate. In case of incorrect information shared by claimants, an end of tax year check by HMRC will reveal discrepancies and they will have to review future deductions.

However, if you have emptied your pension pot during these withdrawals but you still have an income or you are claiming state benefits, the P55 form will not be suitable for you. Instead, you should fill out the P53Z form; either online or by taking a printout. If you have emptied your pension pot but you have no income or have do not claim benefits, you should fill out the P50Z form.

What Is Included In The P55 Form?

In addition to your personal information, you will be asked questions related to the following areas in a P55 form:

  • your total income before tax deduction
  • estimated taxable benefits such as company car or medical insurance
  • the estimated amount of profits from self-employment
  • the taxable amount of your UK pension before  tax deduction
  • details of pension flexibility payments
  • details of taxable state benefits
  • taxed interest on savings and investments
  • dividends and other incomes

Why Are Pensions Being Overtaxed?

Under the pension freedom rules, savers above the age of 55 years in the UK can now make withdrawals from their pension either in the form of small amounts or in a lump sum and won’t have to necessarily purchase an annuity (as per earlier laws).

According to a recent article, around 383,000 people withdrew £2.6bn from pensions flexibly during the first three months of 2021.

Now, this can be done in either of two ways:

  • savers take a 25 per cent lump sum of their pension tax-free, while the remaining amount is charged at their usual income tax rate; or
  • savers use a pension drawdown plan; according to which 25 per cent of their total pension savings are tax-free, while any subsequent withdrawals are taxed

Irrespective of the mode of withdrawal that you may choose, your pension company will collect the due tax on your behalf. Considering this higher amount as a regular withdrawal and being unaware of your tax code, they may end up overtaxing.  

However, by filing a P55 form, you can reclaim the excess amount within 30 days; otherwise, you will have to wait until the end of the tax year to reclaim the excess amount of tax.

How Are Tax Codes Calculated?

Tax codes are a combination of letters and numbers that determine the amount of income tax due on an individual. While the letters indicate your financial position and how it relates to your personal allowance, the numbers tell your employer or pension provider the amount of tax-free income that you are eligible for in that tax year. 

For instance, 1257L (currently the most common 2021-22 tax code in the UK) refers to the new Personal Allowance rate for 2021-22, which is £12,570 and the letter “L” indicates that the individual is entitled to this amount of tax-free income. Any taxes that are to be charged will be above additional amounts beyond this figure.

The following steps are followed by the authorities while assigning tax codes:

  • Step 1: Your tax allowances are calculated. In most cases, this is an individual’s personal allowance added to any other allowances and job expenses.
  • Step 2: Your deductions are calculated. These are incomes for which tax has not been paid and may include any part-time work or certain state benefits.
  • Step 3: The deductions are subtracted from the tax allowances. The result is your pre-tax income. If this amount equals personal allowance, your income remains tax-free.

How Are Tax Identification Numbers Used In The UK?

Tax identification numbers are used to track and monitor the tax accounts of individuals. Although the term TIN Number is not specifically used in the UK in its strictest sense, the HMRC issues two TIN-like numbers to members of the public. The purpose and use of these are described below:

  • The Unique Tax Payer Reference (UTR): This is a ten-digit set of numbers issued by the HMRC to individuals and businesses who qualify for paying tax returns in the UK. You will find this number on the front page of the tax return (form SA100 or CT600). In addition to this, you will find it on a “Notice to complete Tax Return” (form SA316 or CT603) or a Statement of Account. It is also printed next to the headings of “Tax Reference”, “UTR” or “Official Use”; but the appearance and terms that are used will depend on the type of document issued. 
  • The National Insurance Number (NINO): This includes two letters which are followed by six numbers and then only one of the letters between A, B, C and D. Individuals residing in the UK will be issued a NINO once they are 16 years of age. They will be informed by the Department for Work and Pensions (DWP) or the HMRC. If you are an employee, you will find this number on your payslip as well as on a Statement of Account issued by HMRC. It links individuals to their records of national insurance contributions, tax payments, student loans as well as social security benefits.

How Much Income Tax Do I Have To Pay?

Incomes above the minimum cap are taxed at an incremental rate of 20 per cent to 45 per cent depending on whether an individual belongs to the basic, higher or additional tax rate band. Below are details of these bands:

  • 0 per cent income tax when income is up to £12,570
  • 20 per cent income tax when income is between £12,571 and £50,270 
  • 40 per cent income tax when income is between £50,271 and £150,000 
  • 45 per cent income tax when income is above £150,001

If you are self-employed, you are required to file a self-employed tax return to pay your taxes through a self-assessment. 

Which Incomes Are Tax-Free?

Incomes derived from any of the following sources are considered to be tax-free in the UK:

  • Transport costs of an employee’s (and their immediate family) relocation for work in the UK
  • Winnings from games, pool betting, lotteries or competitions with prizes
  • Long service employee awards (certain limitations apply)
  • Individual savings account amounting to £20,000
  • Incomes such as interest or dividends arising from savings accounts 
  • Pensions paid to war widows and dependents
  • Social security and state benefits include maternity allowance, employment and support allowance, attendance allowance, child tax credit and housing benefit. 

Conclusion:

When individuals make extraordinary withdrawals from their pension pot, they may be recorded as a regular amount by the pension company and be overtaxed. According to estimates, HMRC paid back £23m in overpaid pension tax in just the first three months of 2021. To be able to claim this excess amount that you’ve been taxed, you should fill out a P55 form (either online or by taking a print) and submit it to start receiving the payback within 30 days. If you are unable to do so, it will take until the end of the tax term to retrieve the excess amount of tax. 

FAQs: What Is A P55 Form Used For?

Can you claim back tax paid on pension?

When you make withdrawals from your pension, the first 25 per cent of the amount is tax-free. However, if you make withdrawals in excess of this amount (which was quite common during the pandemic due to financial challenges), you will be taxed at a higher tax rate which is called emergency tax. If you believe that you have paid more tax than you are supposed to, you can reclaim the excess amount by filing a P55 form. 

How long does it take to process a P55 refund?

Depending on whether your P55 form was submitted online or through the post, the system that you used (PAYE or self-assessment) as well as any confirmations to be made by the HMRC against your claim, it can take between 5 days to 8 weeks for your P55 refund. 

Does overpaid tax get refunded automatically?

By filling in the P55, you are making a repayment claim to the HMRC to be repaid the excess tax deduction. If you fail to do so, you will have to wait until the end of the tax year for HMRC to pay back this amount. 

Can I complete P55 online?

The P55 form can be filled out online or by taking a printout and should be submitted to the HMRC. To access the P55 form online, claimants can use their Government Gateway user ID and password. If they don’t have one, they can register for the same.

What is a P50Z form?

If you have emptied your pension pot but you have no income or have do not claim benefits, you should fill out the P50Z form to reclaim the excess amount of tax that has been deducted.

References:

Form P55 for the tax year 2020-21 | CIPP.

What is a P55 form? | P55 Pension Tax Repayment

Claim back a flexibly accessed pension overpayment – GOV.UK

P55 form

HMRC returns £26m in overpaid tax – FTAdviser.com

HMRC pays back £716m in overpaid pension tax: are you owed a refund?

Income tax calculator: Find out your take-home pay – MSE

Estimate your Income Tax for the current year – GOV.UK

Tax-free bonus to employees in the UK – What you need to know

Income tax calculator 2022-23, 2021-22 and 2020-21

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