HMRC, formally known as Her Majesty’s Revenue and Customs, is instrumental in helping people deal with their tax affairs, and collecting tax. Of such tax affairs, pension withdrawals will be important to many people right across the country. Once a person reaches the age of 55, under pension freedom rules, they will be able to start taking money from their pension.
“This approach was painful before the pandemic hit but now risks adding extra financial hardship to those who are forced to dip into their retirement pot to make ends meet.
“To give an idea of the scale, in 2020, around 38,000 official reclaim forms were processed by HMRC.
“In the same year, over 600,000 people flexibly accessed their retirement pot for the first time.”
There is a process for Britons to claim a tax refund when they have taken a small pension lump sum.
This, HMRC explains, can be done either through the online P53, or P53Z forms.
The P53 form should be used to claim back tax owed on a small pension lump sum in the following circumstances:
- Where a small pension has been taken as a lump sum
- Where a person has had trivial commutation of a pension fund (from April 2015, this applies only to small Defined Benefit schemes)
The P53 form should not be used if a person has a Pension Flexibility Payment and needs to claim a refund of overpaid tax.
Alternatively is the P53Z form, which can be used by those in receipt if serious ill health lump sums, or people who are flexibly accessing their pension pot.
However, the latter will only be the case if a person has emptied their pension pot.
Finally, for those who have only used part of their pension pot, or individuals who are not working, or receiving benefits, will need to use form P55 or form P50Z.
An HMRC spokesperson explained the issue further to Express.co.uk.
The way the tax system works means some may have to pay more tax initially, but can claim this back or receive the sum automatically.
Changing the system to implement undertaxation, however, could mean Britons are hit with an unexpected bill later down the line.
The spokesperson said: “Nobody will overpay tax as a result of taking advantage of pension flexibility.
“Individuals can claim back any overpayment due to an emergency tax code being applied immediately and we will repay this in 30 days.
“Anyone who does not claim will be automatically repaid at the end of the year.”
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