Savings and Income Combined – New Tax Code

meatandtwoveg · 19 March 2008 at 2:20PM

Hello,

If in the future, you are working, and are well under the 40% tax threshold, so any income you receive from your savings by way of interest can be taken into account, but you still are under the 40% tax threshold. You pay 20% tax on your savings, which the savings product institution automatically withholds; and this coming new tax year you pay 20% after your tax free allowance on you earned income from you job, which your employer will automatically withhold.

The scenario, due to overtime in the coming tax year or the year after, you find that you will breach this 40% tax threshold, so with your earnt income and your income from your savings, you will say for example earn 15k above the 40% tax threshold, this 15k will be the combination of earnt income from your job and savings interest combined to total the 15k. So this 15k should be taxed at 40% rather than the 20% it has been taxed at. Your employer only taxes you at 20% because your yearly wage is under the 40% tax threshold, your savings institution only taxes you at 20%, because your interest from your savings is well under the 40% tax threshold.

How do you pay this tax owed, it is owed, you need to pay it. Is your tax code re-adjusted the following tax year? Do you fill out a form and send a cheque to the HMRC. How do you pay this tax owed, if you have never filled out a self assessment tax form, and do not really want to have to fill out a self assessment tax form?

Thanks, for any feed back.

Krisp_3 · 19 March 2008 at 2:29PM

Hi

I may being stupid, but is your annual gross income from your employer (as declared on your P60) going to be over our under the 40% rate?

If over, your employer should be adjusting your tax code accordingly.

You don't necessarily have to fill out Tax Return (in fact, in my experience, the HMRC are discouraging everyone over the 40% rate having to do so, as it's loads of admin for them). Contact your tax office (ie, the one your employer is registered with) and explain your situation. They are likely to send out a short form for your to declare your additional income on, rather than the full Tax Return.

Keep all your records, BTW!

Mikeyorks · 19 March 2008 at 4:42PM

Unless you're getting £15k savings interest (?) .. then at least some of the £15k is

due to overtime

paid via your employer and automatically taxed, under PAYE, at 40%. If you then have savings interest (which is always deemed to sit 'on top of' your wages / pension etc) which is taxed at 20% ..... you have to advise HMRC. Because, as you say, a further 20% is due.

They will decide whether to ask for an SA Return or to use the simplified P810 procedure.

meatandtwoveg · 19 March 2008 at 5:23PM

Yes, i suppose an example would be something like this?

Earnt income from job = 38k so taxed at 20% after the tax free allowance.

Savings interest from savings = 10k so taxed at source at 20%

So in total income = 38k + 10k = 48k

48k - 40% threshold amount = amount that should be taxed at 40%

So in hindsight you would owe some tax on your savings interest, which was originally taxed at 20%, but should be taxed at 40%.

What is the best way to pay up without having to complete a self assessment form, also am i correct above.

Thanks

Krisp_3 · 19 March 2008 at 6:37PM

Contact your employer's tax office (which is essentially your tax office) and speak to them. Have your PAYE number and NI number handy.

Mikeyorks · 19 March 2008 at 6:46PM

meatandtwoveg wrote: »

What is the best way to pay up without having to complete a self assessment form, also am i correct above.

Yes ... if it's your Savings interest that pushes you over 40% then you're correct. You're no longer automatically 'invited' to join SA just because you go over 40%. In the circumstances you describe the best thing to do is advise HMRC as soon as you know you'll go over .. and they're likely to keep it within PAYE. The normal way to do that is with a P810 they issue after April (has to be back by Sept) .... simple little form you list your gross / tax deducted / net interest on. So you'll need (they don't ask for them - just makes it easier for you) 'Certificates of tax deducted' from all who you have your interest bearing accounts with.

meatandtwoveg · 19 March 2008 at 7:24PM

Mikeyorks wrote: »

The normal way to do that is with a P810 they issue after April (has to be back by Sept) .... simple little form you list your gross / tax deducted / net interest on.

If the scenario i outlined above, happened in say tax year 2008 to 2009, so you would not know you are over the 40% tax threshold until probably sometime around Jan to March 2009. Are you saying the P810 would be filled in after April 2009, after you have not paid enough tax on your savings interest, but must be handed into HMRC before Sept 2009?

Thanks for the help, its just if i manage to land this new job i am chasing, it comes with a fair bit of overtime (20 hrs per week). So if i also sell my house, i will rent in the new area until i settle, so put the proceeds in the bank until i know i will keep the job etc, so all in all you do not just know whether you will breach the 40% threshold, be a nice position to be in, but just wanted to check out the formalities. I just do not want to start to have to fill out the self assessment forms really, i have never had to as my tax has always been PAYE, and at source with any savings income, nice and simple! Like me!

Thank you.

Mikeyorks · 19 March 2008 at 9:23PM

meatandtwoveg wrote: »

Are you saying the P810 would be filled in after April 2009, after you have not paid enough tax on your savings interest, but must be handed into HMRC before Sept 2009?

Yes. If you contact them as soon as you know you will be into 40% .. they will issue the P810 after the end of the tax year. I'm afraid there is no way to voluntarily increase the deductions on your savings interest to 40% to compensate. But once they have the P810 (you will need to chase them as they stockpile them until at least Sept) ... you can voluntarily (it's called a Voluntary Direct Payment) pay any overdue tax rather than have it 'coded out' the following year.

meatandtwoveg · 19 March 2008 at 9:29PM

Double bloody post!

meatandtwoveg · 19 March 2008 at 9:29PM

Mikeyorks wrote: »

Yes. If you contact them as soon as you know you will be into 40% .. they will issue the P810 after the end of the tax year. I'm afraid there is no way to voluntarily increase the deductions on your savings interest to 40% to compensate. But once they have the P810 (you will need to chase them as they stockpile them until at least Sept) ... you can voluntarily (it's called a Voluntary Direct Payment) pay any overdue tax rather than have it 'coded out' the following year.

Mike, are you a tax adviser, you are bloody good, if you ain't! Thanks for your help, i mean that thanks very much, if it does happen, i like the option to either code it out or make the voluntry payment, i think the payment is better, gets it out the way etc? Knowing my luck now, i will not get the job, or not keep the job, but most probably unable to sell the bloody house?

Thanks Mike!

Mikeyorks · 20 March 2008 at 12:18AM

No .. I'm not a tax adviser. Certainly don't get paid that much!

Got kicked out of SA a few years ago when they decided to slim it down a little. So I finished up using a P810 .... for the same reasons you may be. Hence got to know a little about it .... particularly the 'stockpiling'. In fact I need to contact HMRC shortly as I'm still waiting a Code number for 08-09 consequence of, I suspect, a little stockpiling or unopened post!

Best of luck with the job / house. But don't overindulge the 20 hrs overtime .. it's a lot of extra hours.

Savings and Income Combined – New Tax Code

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