Taxed Wrongly on Your First NHS Pension Payments?

This guide is for people who have just started drawing an NHS pension and noticed that the tax taken off the first payments is far more than they expected. It is common, it is usually temporary, and it is fixed by HMRC rather than by NHS Pensions. Here is why it happens, what the codes mean, three worked examples, and the steps to get your money back.

What happens to your first NHS pension payments

NHSBSA's knowledge base is direct about this: pension benefits are treated as earned income and are taxed before they are paid to you. NHS Pensions deducts tax under a temporary code until it is given the correct code by HMRC, which can take up to three months, and HMRC decides what your code should be. The Retirement Guide says the same, and says that NHS Pensions will write to you when your pension begins and each time there is a change in your tax code.

Your first payment is also the one most likely to include something unusual. NHSBSA says that if your pension starts partway through a pension month your first payment covers only the days in that part month, that arrears are payable from your chosen retirement date, and that your first payment is aimed at within 30 calendar days of retiring. Our NHS pension payment dates guide sets out the timing. The tax is then worked out on whatever that first payment turns out to be.

Emergency tax codes explained

gov.uk explains emergency codes in its tax codes guide. You are on an emergency code if your tax code ends in W1 (used when you are paid weekly), M1 (used when you are paid monthly) or X (used when pay dates vary), or if your payslip shows NONCUM. For 2026/27 the emergency codes gov.uk gives in its employer rates page are 1257L W1, 1257L M1 and 1257L X.

The important point is what the code does. gov.uk says that normally your tax is worked out on your total income so far in the tax year, but on an emergency code it is worked out on what you are paid in that week or month only. You are taxed as if you were paid that amount every week or month of the year. That can be right, too much or too little, depending on your payments.

Three worked examples of an over-taxed first payment

These are illustrations of the arithmetic of a monthly emergency code, using the standard £12,570 allowance, which is £1,047.50 a month, and the 20% basic rate. They assume a yearly NHS pension of £15,000, which is £1,250 a month, and no other income. They do not show what NHS Pensions actually deducted from you.

Example A is the one most people recognise. Under a month-by-month emergency code, you only get one twelfth of the allowance against each payment, so if you draw your pension for only part of the year, part of your allowance goes unused. HMRC corrects that when it puts you on a normal cumulative code, and gov.uk says it then asks your pension provider to refund the difference through your pension payments. Whether the code you have is month-by-month is something to check on your advice of payment: look for M1, W1 or X.

Why your first payments can be taxed wrongly

• ✓ HMRC does not yet have the information. gov.uk says wrong codes are usually caused by incorrect or missing information, and that HMRC updates your code using information from your employer or pension provider. A new pension starts that flow
• ✓ You have more than one source of income. gov.uk says the numbers in your code are your tax-free income from that employment or pension. If you have another pension, job or the State Pension, the allowance is shared and one source may get a BR or K code. That can be correct
• ✓ The State Pension has started. gov.uk says you might be put on an emergency tax code if you start getting company benefits or the State Pension, that this is normal, and that you stay on it until the end of the tax year
• ✓ You left a job without a P45 or its details. gov.uk says a P45 gives details that can take you off an emergency code, and that if your previous employer did not give you one you should ask for one
• ✓ Your first payment was not a normal month. A part-month payment or one with arrears is taxed alone under a month-by-month code, as in examples A and B
• ✓ The tax year changed. gov.uk says you will be on a non-emergency code in the new tax year

How to get it put right

The route is through HMRC. NHSBSA's advice is the same: it cannot change the tax code unless HMRC tells it to, and any query about your tax code or tax liability goes to HMRC. Have your National Insurance number and your PAYE reference ready; the PAYE reference is on your pension advice note or P60.

Whoever you ask for help, the question is "is my tax code right for all my income?" Your HMRC online account shows your income as HMRC understands it, and that is where most wrong codes start.

Arrears and tax years

If your first payment included money owed from earlier tax years, NHSBSA's Pensions Increase and P60 FAQ says payments must be taxed in the year they are paid, not the year they are due. Your P60 will show the payment in the year it was made. NHS Pensions can, on request, provide a breakdown of what you should have received in previous tax years, and if you send this to HMRC it will consider whether you were taxed correctly. NHSBSA says to request the breakdown by email or post.

gov.uk's guide to tax on pensions says the same thing from the HMRC side: a pension provider usually pays what it owes from previous years as a single payment, which can temporarily put you into a higher tax bracket. Ask your provider for a written breakdown showing how much you were owed for each tax year, give it to HMRC and ask it to recalculate. gov.uk says HMRC will refund any extra tax you paid. The breakdown can be requested using the email or postal address on our how to contact NHS Pensions page.

How long it takes

• NHS Pensions' temporary code: up to three months, according to NHSBSA, before the code HMRC supplies is used.
• HMRC to issue a new code: within 15 working days of deciding it needs to change, says gov.uk. If you started a new job, gov.uk says to wait 35 days for HMRC to get your income details before contacting it.
• New code to take effect: your next or following monthly payment, says gov.uk.
• Year-end letter: HMRC sends P800 and Simple Assessment letters between June and March of the following tax year.
• Your P60: normally by the end of May after the tax year. See how to get your NHS pension P60.

Over-taxing is annoying but it is rarely a lost sum: it is a refund waiting to happen, as long as HMRC has the information. If instead you were under-taxed, HMRC collects the shortfall by adjusting your code, and gov.uk says that if the underpayment is under £3,000 and your income is enough to cover it, it usually does this automatically over twelve months from the start of the next tax year.