What is the Savings Income Figure on my Tax Coding Letter?

drc15

Hi,

I have just received my new Tax Coding letter, and I am unsure of what the actual "Savings income at a higher rate" figure actually is and how it is worked out.

Is the figure the actual extra 20% interest above the 20% interest already paid on the savings amount?

Can someone tell me how this figure is worked out or just define it for me?

Thanks

Daniel

fengirl_2

HMRC have calculated that you are a higher rate (40%) taxpayer. As your bank or building society interest is only taxed at source at 20%, the extra 20% has to be collected through your PAYE code number against your salary.
If you had interest of £100, the tax on this would be £40, but the bank would only deduct £20, so the extra £20 has to be collected through PAYE. HMRC would therefore gross up the £20 tax thus:
20 x 100 / 40 = 50 - the restriction in your code.
A restriction of 50 in a code for a 40% taxpayer would produce tax of 50 @ 40% = £20.00. QED

drc15

Thanks for the reply.

So if I have a value of £1,000 in my coding letter for this, are the HMRC implying that:

1. I have actually earned £2,000 interest for the year (£1,000 @ 20% and £1,000 @ 20% - totalling 40%?

2. I have actually earned £5,000 interest for the year and this figure is 20% of the £5,000 interest?

Thanks

Daniel

fengirl_2

A £1000 restriction in your code will collect £1000 @ 40% = £400 which indicates that you have gross interest of £1000.