Higher rate taxpayer - interest?

polgara

Just realised that I've now become a higher rate tax payer (eek), been paying interest on my savings as per usual but been told that I need to pay more tax on the interest. Is this right...and what should I do?

Total dunce on the tax front

BigDunc

Bank account interest is treated as earned income for the purpose of taxation so will be taxed at your highest rate (40%). Interest is paid by default with basic tax taken off (I believe this is still 22%?) so you actually owe a futher 18% of your interest as tax. As to paying it, well... if you are self-assessed then there is a section of the form to fill in purely for this purpose. If not, I guess you are supposed to ring your tax office and tell them you haven't paid enough and can they please have some more.

I hope you are making maximum use of your ISA allowance this year?

Duncan

silvercar

Ring your tax office, they will then send you a tax return to complete (on paper or you can file online). Any extra income tax for the current tax year 2005-06 will become due 31 January 2007. They'll give you a bank slip so you can pay the tax at your bank or post office or you can pay online with a switch card. In future years they can adjust your tax code so it will be taxed through your PAYE.

pchelpman

BigDunc is more or less right.

The tax taken by savings institutions is at 20% so it's up to you to pay the rest voluntarily. If you don't .... interest/fines/surcharges/penalties start being bandied about.

If you haven't been sent a self assessment Tax Return for the year in question it's best you download one yourself. The 2004/05 Return is here .....

http://www.hmrc.gov.uk/forms/sa100.pdf

If you are employed you will also need the additional supplementary page for that too. It's here .....

http://www.hmrc.gov.uk/saemployees/fagsa101.shtml

You should file it as soon as possible but today's deadline is not vital. It only applies if you have already been sent a Return to complete more than 3 months ago.

As to working out what tax you pay, well, if there really is nothing else other than the interest you mention, then it's just the extra 20% on the gross figure.

Example ....

Interest paid > £100

Tax dedcuted at source > £20.

You get > £80.

You owe > £100 @ 40% LESS the 20% already deducted. Leaves £20 for you to pay.

Hope that helps.

ctm_2

As has previously been stated, you have to pay the extra 20%, as only 20% is deducted at source from interest.

However, the advice int he above post is incorrect. You do not need to file a self assessment tax return.

All you need to do is write to HMRC detailing how much interest you earnt in the last tax year, and they will ask for any further info they need and calculate the extra due. They will then include a deduction in your tax code to collect the extra tax due. At the end of each tax year let tehm know the exact amount of interest received so that it can be adjusted as necessary, and any extra due collected, or any extra deducted can be refunded.

pchelpman

I'm not getting argumentative here but am genuinely curious.

ctm wrote:

You do not need to file a self assessment tax return.

On what basis do you say this?

ctm_2

pchelpman wrote:

On what basis do you say this?

On the basis that purely being a higher rate tax payer is not part of the criteria for having to complete a self assessment tax return.

Edit: See http://www.hmrc.gov.uk/sa/guidelines.htm for the criteria

pchelpman

ctm wrote:

On the basis that purely being a higher rate tax payer is not part of the criteria for having to complete a self assessment tax return.

Edit: See http://www.hmrc.gov.uk/sa/guidelines.htm for the criteria

Fair enough but personally, to be absolutely certain no rules are broken, I would file a form. It's not difficult to complete and there can never be any arguments about whether a Return was required or not.

Polgara doesn't mention anything more, income wise, so maybe there isn't anything else but filing a Return would make sure all bases are covered.

Me being cautious, I guess. Just want to avoid any and all possible disputes.

EDIT 1.2.06 > A little further research shows ctm is completely right. In the first year of this interest - and ALWAYS PROVIDING THERE IS NOTHING MORE TO DECLARE - the Revenue just require a letter comfirming the interest amount and they will collect any extra tax due via the PAYE coding.

For subsequent years the Revenue will issue a "tax review" from P810. This is a very truncated version of a Tax Return requiring simple declarations of income, expenses and deductions.