Declaring savings interest earned over £1k
Discussion
Hello, this has most likely been asked but would like a fresh perspective on a (I guess nice to have) query.
I'm more than likely to exceed the PSA of £1k for 23-24 FY by around £500 of interest earned (£1500 total). So I will have a tax bill of £100 (20% tax bracket earner). I have maxed out my ISA allowance for the year.
I'm ok with this but I'm not sure how it is collected.
I read on the HMRC website that the banks send info on interest paid out and HMRC calculate the tax due and change your tax code accordingly. I'm worried how accurate this is. I saw post on here that if that route is chosen that there is a fair chance it will be wrong and I will have to spend time sorting it out.
The issue I see is that this has been collected over 6 different banks since April. I have kept a running monthly total of what interest ( to the penny) has been paid in each month from each bank and I never really had to consider this scenario before due to low interest rates in previous years. Will all this info passed over from the banks be accurate? Can I see this info myself?
I was hoping I could self declare the interest received and have the tax calculated and I pay this as a one off payment back to HMRC?
I'm also contemplating whether it would be worth placing any savings outside of ISA's into premium bonds to potentially minimize the excess tax charge.
Any help or advice will be appreciated.
I'm more than likely to exceed the PSA of £1k for 23-24 FY by around £500 of interest earned (£1500 total). So I will have a tax bill of £100 (20% tax bracket earner). I have maxed out my ISA allowance for the year.
I'm ok with this but I'm not sure how it is collected.
I read on the HMRC website that the banks send info on interest paid out and HMRC calculate the tax due and change your tax code accordingly. I'm worried how accurate this is. I saw post on here that if that route is chosen that there is a fair chance it will be wrong and I will have to spend time sorting it out.
The issue I see is that this has been collected over 6 different banks since April. I have kept a running monthly total of what interest ( to the penny) has been paid in each month from each bank and I never really had to consider this scenario before due to low interest rates in previous years. Will all this info passed over from the banks be accurate? Can I see this info myself?
I was hoping I could self declare the interest received and have the tax calculated and I pay this as a one off payment back to HMRC?
I'm also contemplating whether it would be worth placing any savings outside of ISA's into premium bonds to potentially minimize the excess tax charge.
Any help or advice will be appreciated.
Ironduke12 said:
I read on the HMRC website that the banks send info on interest paid out and HMRC calculate the tax due and change your tax code accordingly. I'm worried how accurate this is. I saw post on here that if that route is chosen that there is a fair chance it will be wrong and I will have to spend time sorting it out.
It happened to me a few years ago when a three year fixed savings account matured and pushed me over the limit.This is exactly what happened - HMRC adjusted my tax code for the following year to claw back what I owed. I didn't keep my records to the same detail as you have but the numbers looked "about right" to me
I'm sure I'll be in the same situation this year with the increase in savings rates. I intend to do nothing and let HMRC sort it out as it seemed to work ok last time.
I don't know but it seems to be that if they prefer to adjust your tax code to get the excess back I'd just let them do that. You could possibly "do more harm than good" and confuse the issue by doing a self assessment or whatever if you don't need to
I use the presumption that interest on savings is collected through my tax code adjustment. It does change a few times each year but you can see how much tax is collected and for what on your annual statement through the Gov Gateway.
Alternatively you could elect for Self Assessment and do it all yourself for complete accuracy. The less form filling I have to do the better so that’s not a route I’d want to take but accept nowadays it’s quite straightforward when you’ve done a few.
Alternatively you could elect for Self Assessment and do it all yourself for complete accuracy. The less form filling I have to do the better so that’s not a route I’d want to take but accept nowadays it’s quite straightforward when you’ve done a few.
For the past few years I've gone over the Personal Savings Allowance and had my Coding reduced. The HMRC should issue a new Code and a tax calculation including the amount of interest they think you have received, from memory the ones I bothered checking were all under-estimated.
I don't think they have ever collected the amount I calculate it should be, I even got a tax refund one year...
If you earn over £10,000 of investment income you would need to complete a Tax Return.
I don't think they have ever collected the amount I calculate it should be, I even got a tax refund one year...
If you earn over £10,000 of investment income you would need to complete a Tax Return.
skeeterm5 said:
What happens if you are retired/not working and have no other income? I assume a tax return is required?
My wife and I are retired (18+years) , both have a State pension, I have a private pension, and we both have savings producing a reasonable return. I am over the thresholds and have submitted SA returns every year. We have ensured my wife is always just below the thresholds so she pays no tax and has never needed to complete an SA return. For her, this is very likely to change for the current or maybe the next income tax year due to this government's fiscal drag policy, the reduction in some of the thresholds, and the increase in interest rates generally.
Regarding completion of the SA report, IMO the key is to maintain a spreadsheet of all relevant information, update it as and when any relevant information is received, and keep the paperwork with the spreadsheet. Then, when ready to complete the SA it's simply a matter of transferring totals from the spreadsheet to the right boxes in the SA.
R.
Interesting, I had no idea banks did this. I've never done this accurately on my self assessment before. Generally I've just guessed as it's always been under 1k. The tax penalty is usually based on the tax shortfall so there didnt' seem like any incentive to trawl through multiple accounts to get it right. I'd maybe look at the largest one and extrapolate a rough guess.
I'm guessing this year will be a bit different for many
I'm guessing this year will be a bit different for many
Self Assessment is the best way of dealing with this. Relying on HMRC to adjust tax codings leaves you open to all sorts of problems. Note - if HMRC gets it wrong and you end up underpaying tax, YOU will be penalised and YOU will be charged interest on any late tax payments. UK tax requires the TAXPAYER to get their tax right. There is no obligation for HMRC to get the tax right.
Prior to the introduction of the £1,000 bank interest threshold, banks used to automatically deduct tax at 20% on interest earned on personal accounts. This meant that basic rate tax payers did not have to do anything in respect of notifying HMRC about their interest income and tax arising as they had already paid the correct tax on the interest. If you were a non tax payer you could instruct your bank or building society to stop deducting the 20% tax. If you were a higher rate tax payer, then you would normally be completing Self Assessment tax returns and this would ensure you paid the additional 20% tax due on the interest through the Self Assessment system.
Banks stopped deducting the 20% tax when the £1,000 interest threshold was introduced.
The introduction of the £1,000 threshold also coincided with a period of record low interest rates, so many people, even those with substantial savings, were often not getting near their annual £1,000 allowance.
This has now changed as interest rates have been rising and a whole bunch of people are going to be finding that they owe tax on their interest and won't know what to do about it - or may not realise they have to do anything.
Wouldn't it be good if HM Government actually ran some sort of advertising campaign to let people know about this.
Prior to the introduction of the £1,000 bank interest threshold, banks used to automatically deduct tax at 20% on interest earned on personal accounts. This meant that basic rate tax payers did not have to do anything in respect of notifying HMRC about their interest income and tax arising as they had already paid the correct tax on the interest. If you were a non tax payer you could instruct your bank or building society to stop deducting the 20% tax. If you were a higher rate tax payer, then you would normally be completing Self Assessment tax returns and this would ensure you paid the additional 20% tax due on the interest through the Self Assessment system.
Banks stopped deducting the 20% tax when the £1,000 interest threshold was introduced.
The introduction of the £1,000 threshold also coincided with a period of record low interest rates, so many people, even those with substantial savings, were often not getting near their annual £1,000 allowance.
This has now changed as interest rates have been rising and a whole bunch of people are going to be finding that they owe tax on their interest and won't know what to do about it - or may not realise they have to do anything.
Wouldn't it be good if HM Government actually ran some sort of advertising campaign to let people know about this.
Eric Mc said:
Wouldn't it be good if HM Government actually ran some sort of advertising campaign to let people know about this.
Yes it would, Eric, but this could mean that more people are likely to pay their tax on time and so HMRC's very large "fine" income would reduce, so I doubt if a campaign will be launched!R.
Filling in the Self Assessment on line is genuinely remarkably easy so long as you've got access to basic stuff like your bank statements so you can tot up the interest you've received, dividends, charitable donations made, etc. For convenience I run everything through a small numbers of accounts so all the information I need is pretty much in one place that I can access on line. It really isn't a big deal and no one should find it a daunting proposition.
Slightly off topic but if your income is less than £12,570 you can earn upto £5,000 interest tax free can't you ?
If you were working part-time for example....not self-employed.... presumably you'd be taxed by your employer and would have to claim that back at year end through self-assessment?
If you were working part-time for example....not self-employed.... presumably you'd be taxed by your employer and would have to claim that back at year end through self-assessment?
Puggit said:
All our savings are in my wife's name now to avoid me paying tax on the interest (highest rate tax payer). Yes, I trust her.
Yes, that was our goal, and it has worked OK for many years, but now with fiscal drag and the lower thresholds I'm sure my wife will be due to pay tax, so she (ie me!) will complete and file the SA report when required, probably 2023/4.Some years ago I transferred a shareholding to her so we both had a CGT allowance. Now, with the very substantial lowering of this allowance, it is less worthwhile going through the transfer process.
R.
V8covin said:
If you were working part-time for example....not self-employed.... presumably you'd be taxed by your employer and would have to claim that back at year end through self-assessment?
You are never "taxed by your employer". However, employers have a legal duty to collect tax and NI on behalf of HMRC through the PAYE system. If the system is working correctly, HMRC will have allocated to the employee the correct PAYE Tax Code which should ensure that the correct PAYE is deducted each month/week from the employee's salary.
However, HMRC does not always get tax coding correct so it is usually up to the employee to know and understand the tax code system and recognise when the wrong code is being used.
Once they identify that the wrong code is being used it is the EMPLOYEE'S duty to notify HMRC so that the code is corrected.
Not a lot of people know this.
Thank you for all replies. I did post this also on another website and it was suggested that I should be maximizing any potential income and not be shielding from tax. Maybe I hadn't got the point when posting this, but that has always been me, thrifty with finances. I have changed bank twice for incentives in the last 12 months, moved lifetime ISA for a 1.5% pa gain and also cash ISA setup to gain tax free. For what is a fairly small deduction for a modest gain. Thinking more of the premium bonds now, wouldn't come close to the gain from the potential interest even after any deductions.
How the last 12 months have changed, only in Dec 2022 did I receive a 12 month interest credit on £40k of just £354, now I can expect to receive over 4 times that.
I can well imagine there will be a majority who do noting and wont notice when it comes to this, but I suspect those with large cash investments will have considered and be on top of this.
How the last 12 months have changed, only in Dec 2022 did I receive a 12 month interest credit on £40k of just £354, now I can expect to receive over 4 times that.
I can well imagine there will be a majority who do noting and wont notice when it comes to this, but I suspect those with large cash investments will have considered and be on top of this.
Gassing Station | Finance | Top of Page | What's New | My Stuff