Quick "tax on savings" question

MGCP

This year I started a job which put me into the higher rate tax bracket.

At the moment I'm just writing a letter to HM Revenue and Customs as I understand that I need to tell them about the contributions I have been making into a personal pension for the last three months in order to benefit from 40% tax relief rather than the 20% I'm currently getting.

I also understand that, even though I get very little interest on my savings, I ought to now be paying 40% on any interest I receive that isn't protected by an ISA wrapper. Could someone please tell me if I need to complete a tax return to make sure I am paying the higher rate on my savings, or is there an alternative form that would deal with this declaration (or would just another letter to HM R&C suffice)?

Thanks!

alanq

As a higher-rate tax payer I feel confident that HMRC will be writing to you to make a tax return by the end of the tax year - if not sooner. If they don't contact you then make sure that you contact them at that time.

Once you have completed a tax return the additional tax due on the little interest you will have earned will be calculated and it will be collected over the course of 2011-12 via PAYE.

MGCP

Thanks alanq. I can't say I have enormous faith in HMRC knowing what is going on themselves (especially in light of the recent news!).

Presumably the imminent deadline for tax returns relates to the 09/10 tax year, so I will have until next October 2011 to tell HMRC about my tax position for tax year 10/11, is that right?

alanq

For a paper return that would be the latest to send in a completed form. (January 2012 online.) I recommend making the return as soon as possible after April 6th 2011 to allow time to sort out any problems.

I wrote that additional tax due would be collected by PAYE during 2011-12 I meant 2012-13. (Large sums would be collected earlier but you say that the sums involved are small). So sending in a return early doesn't mean paying the tax any earlier.

MGCP

Total interest of just a few hundred a year unfortunately. Thanks again for your help, it was much appreciated.

ScarletBea

What I do is call the HMRC in the beginning of each tax year and tell them them the amount I got in interest outside an ISA, then they just incorporate it into the PAYE code.
No need to fill in anything, and I don't even write letters, just that single phone call.

alanq

I was given a tax code that over-estimated the tax that was due. (HMRC had included some gross interest that I had received some years back in the calculation). Anything for a quiet life I wasn't going to challenge it as I knew that I could claim back whatever I overpaid. Then I received a demand for "payment in consideration" for the sum again despite the fact they had already arranged to collect the alleged tax owed via PAYE. I got the demand for "Payment in consideration" cancelled but despite what I thought had been agreed on the phone my tax code was unchanged.

The online system for self-assessment worked well and I got a rebate of overpaid tax within a week or so of submitting my return.

So that was 2009-10 sorted. To get my tax code corrected for 2010-11 I rang up and told them the interest that I was expecting to receive and told them that my other earnings were unchanged. I next got an even worse tax code because they assumed that the interest I said I would be earning was interest to be taxed at the higher rate when in fact none of it should have been taxed at the higher rate. Sorted at the next attempt and my monthly company pension payments are now noticeably higher.

I don't trust phone calls. Also why do we have to pay to ring 0845 numbers to discuss tax? I thought that 0300 numbers were going to be introduced for this sort of thing. I got a ticking off for using a geographical number deduced from the one given for dialling from overseas.

lisyloo

As a higher-rate tax payer I feel confident that HMRC will be writing to you to make a tax return by the end of the tax year

I'm not at all confident of this.

I'm higher rate but my tax affairs are relatively simple (like yours).
They won't allow me to go self-assesment.
They try to send a form every 3 years but that doesn't meet the requirement that I should inform them if I owe them tax (or if I've overpaid also).

I send them a letter each year like this, and any under/overpayment gets sorted that way.

NI number: xxxxxx

Tax ref: xxxxxx



Dear Sir/Madam,




I would like to submit details so that my income tax for 2009-2010 can be recalculated.
Please recalculate my income tax with the following details:


Gross savings income: £1.22
Tax paid on savings: £0.22
Personal pension contributions : £xxxx.87 (gross of basic rate tax relief)
One-off Gift Aid charity donations: £xxx.25 (gross of basic rate tax relief)

John_the_Boy

Don't forget to advise HMRC of any charitable donations you make as you are entitled to higher rate tax relief on those as long as they are via Gift Aid.

As lisyloo says a letter is all that is needed unless you have complex tax affairs.

lisyloo

Don't forget to advise HMRC of any charitable donations you make as you are entitled to higher rate tax relief on those as long as they are via Gift Aid.

I always put these in gross of basic rate rate relief (by dividing by 0.8) as I believe these are the figures they need (and the ones that go on the self assesement figure).

The basic rate tax relief for your pension may well be added by the pension scheme and the charity will claim the basic rate tax relief.

On the R37 statement they send you back, these figures will be added to your 20% tax band, which means you will only pay 20% tax on that amount and not 40%, hence giving you the additional 20% tax relief for higher rate.

Hope that makes sense.

KingKenny

https://forums.moneysavingexpert.com/discussion/2709817

HMRC do actually get details of investment income, at least in terms of bank and savings accounts in the UK.

I self access so no experience but if you work and have savings, which i see debated regularly on some sites, i just thought it may apply, because i did not no?

But say you earn £35k per annum PAYE, so taxed at 20% source, say you get £12k per annum in savings interest before tax is paid at 20% savings tax, so you total gross per annum is £47k, which puts you above the 20% threshold, and into the 40% threshold by around £3k, so you owe another 20% of £3k, which is £600.00.

HMRC need to adjust your tax code the following year to claw back the £600.00, is this what this debacle is all about, just a thought?