The festive season has passed, and the tax return period is now fully underway. Pensioners, especially those who have recently retired, may be asking themselves if they need to file a tax return. According to Aatif Malik, director at Tax Accountant, this question is especially pressing as the January 31, 2025 deadline looms.
It's commonly assumed income from pensions, particularly the State Pension, is non-taxable. But as Malik clarifies, this isn't the case. If you're receiving both a private pension and the State Pension, you typically don't need to file a tax return, since your pension provider will deduct any taxes owed through the Pay as You Earn (PAYE) system before disbursing your payments to you.
For pensioners whose sole income is the State Pension, if it exceeds the Personal Allowance threshold of £12,570 for the 2023/24 tax year, the HMRC will issue what’s called a Simple Assessment Tax Bill. This method is used by HMRC to collect tax not gathered through PAYE, and it means you won't need to fill out the usual self-assessment tax return form.
“So, if you receive the State Pension as your only source of income and it exceeds the Personal Allowance, you’ll pay it through the Simple Assessment system,” Malik explained. “You will be notified by letter about how much you owe. If your State Pension is at or below your Personal Allowance, you typically won’t owe any tax.”
Payment for Simple Assessment Tax bills can be made online, via bank transfer, or by cheque, and the letter will inform recipients of their payment deadline. It’s worth noting you’ll only be taxed on what you earn above the Personal Allowance, not on the total amount.
Many retirees who continue to work part-time will also need to factor their work income. For these individuals, taxes aren't deducted from their State Pension directly; instead, HMRC issues adjusted tax codes to their employers to account for the total taxable income, ensuring correct deductions are made.
“If you continue to work after receiving the State Pension, your employer will usually take off any tax you owe,” Malik added. “It’s important to notify HMRC about any additional income to make sure your tax code is accurate. If you suspect any errors, get in touch with HMRC.”
For self-employed individuals, filling out the Self Assessment tax return is necessary, with paper returns due by 31 October 2024, and online ones by January 31, 2025. This return will cover all income sources earned from April 6, 2023, to April 5, 2024, including pension income as well as money from private or workplace pensions.
Aatif Malik cautioned, “Tax returns can feel overwhelming for pensioners who are adjusting to their new income streams. Knowing where you stand and following these steps will help clarify whether you need to submit a self-assessment tax return.”
Self-employed individuals are also reminded of their approaching January deadline. Sarah Harkness, co-founder of IN Accountancy, noted there’s still around two million individuals yet to file their 2023 to 2024 tax returns, with many struggling with the sense of overwhelming duty. Harkness offered five straightforward steps to streamline the process.
“If it’s your first time filing, follow all five steps,” Harkness advised, “and for seasoned filers, you might go straight to step three.”
The steps include locating your Unique Taxpayer Reference (UTR), registering for your digital tax account, listing your income sources and expenses, gathering supporting documentation, and finally, logging on to complete your filing online.
“For newcomers, registering for your UTR is pivotal as it can take time to receive it after registration,” Harkness warned. She emphasized ensuring all financial records are digital and well-organized, as this will make claiming expenses and allowances easier come tax time.
Those falling under the criteria for filing for the first time include newly self-employed individuals earning over £1,000, those receiving Child Benefits above the threshold who need to repay through their tax returns, and anyone earning untaxed income above £2,500.
“People often find the tax return process intimidating, which can lead to unnecessary stress,” Harkness concluded. “But tackling it methodically can eliminate some of those worries.”
With the January 31 deadline fast approaching, pensioners and the self-employed alike would do well to start preparing now, ensuring they are up-to-date and ready to meet their obligations with peace of mind.