The weather is getting milder, the birds are singing, the new tax year has just begun and you may well be thinking about how your tax affairs will work once you have left the Armed Forces. In this short article written for Pathfinder Magazine we explain the basics and set out the revised 2019/20 tax bands.
You may be leaving the Armed Forces intending:
- Not to work, relying instead on your Armed Forces pension or Early Departure Payment (EDP) income;
- To work as an employee but you have no pension or EDP income in payment;
- To work as an employee and you have pension and/or EDP income; or
- To be self-employed, in which case you are definitely going to have to ‘self-assess’.
Whichever group you fall into, the following captures the basics that you need to understand about tax.
Pensions and EDP income count as ‘earned income’ – they are taxable but National Insurance Contributions (NICs) are not due in respect of them. The only time that the pension becomes tax-free is in the event of a medical discharge where the Principal Invaliding Condition giving rise to the discharge is due to service AND attracts a Guaranteed Income Payment from the Armed Forces Compensation Scheme or the War Pension Scheme which has assessed the disability at 20% or more.