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Tax-free Interest for Low Earners?

Hi

I earn around £5k a year basic plus variable overtime as I am a full time student. My other income is renting a room in my own home (tax-free) and maintenance grant (tax-free). I have filled in the form to get my interest om my savings tax-free this year, but have not done so in previous years as I have been worried that I am filling in the form when I am not supposed to. I do pay tax some months, and am not 100% sure if I hit the threshold overall or not. :confused: What happens if I fill in the forms and it turns out that I am taxpayer? Also can I backdate the forms so I get tax-free interest for previous financial years?

Thanks!
Declutterbug-in-progress.⭐️⭐️⭐️ ⭐️⭐️

Comments

  • If the forms are filled out when you should be paying tax, then HMRC can fine you and claim back any tax due. However, the course of action all depends on whether it was done intentionally or not. What you need to do is calculate the total gross (before tax) income you have from your job and add on any other income (Don't include the rent yet - I'll explain later). By the way, you should either be paying tax all months, or no months as it is worked out on a cumulative basis. National Insurance may be charged some months, but not others.

    For 08-09, if your gross income is less than £6035, then go ahead and fill in the R85 form for gross interest. If not, you need to inform HMRC that you should have paid tax and tell the bank to pay it net, if needs be.

    For the rent, how much does this earn you? If less than £4250 per annum, you can elect to be part of the rent-a-room scheme, which it sounds like you've already done?
    Northern Ireland club member No 382 :j
  • dougz_2
    dougz_2 Posts: 523 Forumite
    Part of the Furniture Combo Breaker
    For 08-09, if your gross income is less than £6035, then go ahead and fill in the R85 form for gross interest.
    Actually the limit is £6475 to be R85 eligible the current year.
    If at some point you realize you will exceed that then you need to promptly tell your banks to cancel the R85.
    To claim back a previous year requires a form R40 instead.
  • dougz wrote: »
    Actually the limit is £6475 to be R85 eligible the current year.
    If at some point you realize you will exceed that then you need to promptly tell your banks to cancel the R85.
    To claim back a previous year requires a form R40 instead.

    For 08-09, the limit is 6035. 6475 is for 09-10, but that's of no use now because the OP is very unlikely to know what his income will be for the year ahead!
    Northern Ireland club member No 382 :j
  • Fire_Fox
    Fire_Fox Posts: 26,026 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    I was paid weekly in one job last financial year, and monthly in my present role: both jobs have taxed me the weeks/ months where I did overtime. I think I have paid NI pretty regularly each week/ month, and also pay into my NHS pension monthly. :D

    These two jobs overlapped for a few months and I switched who was my main employer near to the end of the overlap and my tax went haywire!! Looking now I earned £7700 in total and paid £66 in tax last financial year, and the previous year earned £6200 and paid £88 in tax. So I was a taxpayer, doh! :o

    For this year my basic is just over £5k as stated in my OP. No idea how much overtime I will do - this depends on my college commitments, sickness of other staff etc. :confused: This month I have quite a lot extra coming, as I haven't yet been paid for any overtime during 2009.

    I didn't know I needed to elect to be part of the rent-a-room scheme ... I get under the limit so I didn't bother to tell the tax office. :eek: I did advise the Student Loans Company, but they said it wouldn't affect my entitlement.

    I clearly need to get up to speed with my finances over and above knowing what savings I have and where!! :rolleyes:
    Declutterbug-in-progress.⭐️⭐️⭐️ ⭐️⭐️
  • Mikeyorks
    Mikeyorks Posts: 10,377 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    Fire_Fox wrote: »
    Looking now I earned £7700 in total and paid £66 in tax last financial year, and the previous year earned £6200 and paid £88 in tax. So I was a taxpayer, doh!

    In which case ... and as your income appears to be headed in a similar direction for 09-10 ...... then it's probably inappropriate to complete an R85(s). But do bear in mind your Personal Allowance this year is increased to £6475.

    Also (for both 08-09 and 09-10) .... that there is a 10% Savings (only) rate of £2320 (08-09) and £2440 (09-10). This means that you only need to pay 10% on that Interest which falls into the band formed by your Personal Allowance + the 10% ceiling.

    So - for 08-09. Your PA + 10% rate aggregates to £6035 + £2320 = £8355. So any gross Interest up to £655 (£8355 less £7700) is only chargeable at 10% instead of the 20% that should have been deducted at source. An R40 is the way to reclaim any overpayment.

    Superficially (£7700 earnings and £66 tax) .... however, you look to have underpaid tax last year (£7700 - £6035 = £1665 @ 20% = £333 tax due! But ...... I assume the difference is the NHS Pension contributions reducing your taxable pay???? If so - that will also increase the amount of gross interest allowed at 10% commensurately in my calculation.
    If you want to test the depth of the water .........don't use both feet !
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