SAM121600 - Returns: individuals returns: state pension lump sum deferral
Details should be entered on returns for years 2006/07 onwards where a taxpayer has received any state pension lump sum and had tax withheld by the Department for Work and Pensions (DWP) at the time of payment (boxes 8 and 9 of the Income section of the return page TR 3). This will only happen when the start of payment of a state pension is deferred at the request of the pensioner.
The details of this income will be shown on the PAYE Browser under the employer reference 267/LS500. This is the Department for Work (DWP) reference used when state pension is deferred and paid in a lump sum. If any other reference is shown, the payment is not state pension.
As these amounts are in respect of a lump sum, no attempt should be made to include them in a PAYE code.
The inclusion of provisional figures should be noted by the taxpayer at box 20 of the Finishing your Tax Return section page TR 6 with additional information being provided at box 19 of that section page TR 6.
State pension lump sum is taxable in the year in which it is received and will normally be charged in the tax calculation at the appropriate rate, as there are specific rules about how this income is charged to tax.
Note: In a small number of cases for the year 2006/07, the calculation will incorrectly charge tax on the state pension lump sum at 10 per cent where the customer is not liable to tax. In order that we do not penalise a taxpayer as a result of this error, you should be particularly vigilant in any case where box 11.1A is completed. Where the tax calculation indicates an unexpected liability, you should
- Capture the figure of tax at box 11.1A
- Repair box 11.1B to 0 (zero)
- From the SEES Notes Paster (Customer Service Messages - LDC) select the message entitled (11.1A & 11.1B - Lump sum pension charged in error). The message will read
‘I have not included the lump sum National Insurance Retirement Pension payment (£xxxx) that you have declared on your Tax Return in this Tax Calculation. That is because a system error of which I am aware would charge you tax on the lump sum, even though no tax is due from it. I apologise for any confusion that this may cause’
- Note: If you are dealing with an amendment to a return and marginal rate applies, firstly review customer service messages on the original return by using Function VIEW RETURN