Saving accounts and high tax payer

LYT_2

I realise that interests on saving accounts are taxed at 20% and that if you are a high tax payer, you should let inland revenue know about your annual interest so that they charge you an extra 20%.

Do people who don't fill a self assessement form actually do this? What are the risks of not declaring it every year?

gozomark

Do people who don't fill a self assessement form actually do this?
yes

What are the risks of not declaring it every year?
a big fine

LYT_2

So this would be for anyone who earns more than £37000/year, right? I asked people around me and no-one does it so it's interesting to see your comment. Thanks

bristol_pilot

In theory a criminal record, a big fine and/or a prison sentence if the amount evaded, possibly over a number of years, is more than about £50,000. A conviction for such a matter could lose you your job and prevent you working in certain occupations such as finance. In practice there are very few prosecutions.

Most likely a surcharge and the hassle of having your tax affairs gone over with a fine toothcomb every year for several years to come.

The higher rate band starts at £37400, but to this you have to add your tax allowance, typically £6475 personal allowance. Also any pension contributions taken direct from salary are deducted. So you can earn around £43875 before higher rate tax is an issue.

LYT_2

OK so how can people know if they are high tax payer or not? Do they need to add it all up or there is a simple way to find out?

bristol_pilot

Yes, you add it all up. I have a spreadsheet that I fill in during each tax year.

The relevant figures for employment income are on your P60 that you get every year and this takes your tax allowance into account. Then add to that any taxable interest received, remember to use gross (not net) interest - from bank or building society statements.

If you are over the £37,400 limit or anywhere near it you need to call your tax office and ask for a tax return. It will be the full tax return the first time; if you only have interest to declare they may send you the 'short form' in future years. The tax office will then tell you how much tax you owe or, indeed, they owe you. If it is a small amount it will be collected by adjusting your tax code for the following year or you can opt to pay it as a lump sum if you prefer.

Remember to claim every single legitimate allowance e.g. gift aid, professional subs etc.

SuzieSue

In practice what normally happens is that any higher rate tax you have to pay on investments is more than offset by the higher rate relief you are entitled to for any pension contributions you have made. A few of my higher paid employees received letters a few years ago asking them to fill in a tax return. In all cases, they were actually due a tax rebate from the Revenue for this reason. The Revenue then told them they didn't need to fill in a tax return in the future unless they wanted to (I suspect because they didn't want to pay any more rebates).

LYT_2

OK and if I do this now, are they likely to query on previous years?

ScarletBea

bristol_pilot wrote: »

If you are over the £37,400 limit or anywhere near it you need to call your tax office and ask for a tax return.

Not necessarily. When I called my tax office they just asked for the amount, and are now deducting the extra 20% from my PAYE code, so no hassle at all involving self-assessment tax returns.
It's just a question of calling them mid April every year, when all the interest has been recorded (I keep a spreadsheet for this).

bristol_pilot

Just to add, if you are a higher rate taxpayer and the (gross) income from interest is more than £10,000 you will be required to fill in a tax return. They are not that interested in small amounts.

bristol_pilot

LYT wrote: »

OK and if I do this now, are they likely to query on previous years?

Not for small amounts. If its thousands then yes.