how do savings work for income below 8k tax threshold?

ermine

I've taken voluntary redundancy for early retirement. Not drawing a pension at the moment so for the first time in my working life I will be earning < the income tax threshold which is about 78K ISTR for this year (2012/13)

I have a wodge of cash in a Nat-west e-savings account which is paid net of BRT, and I'm looking at shifting some of this into the Cahoot 3.6% 1 year fixed deal. I max my S&S ISA each year so I don't want to go the Cash ISA route.

Question is how does this work for a non-taxpayer? I will need to claim back the tax I paid on the salary I earned in the first few months of this tax year, do I claim the tax back from the bank (Nat West and/or Cahoot) or from HMRC? I have always been on PAYE so I've never dealt with this sort of thing before.

calypso_rhapsody

You should fill in a form (R85 i think) for each bank claiming to have the interest paid gross. Many banks have the form on their website. I suspect that this will only work for future interest credited so you will have to reclaim any tax already deducted via the HMRC.

Do you expect to become a tax payer at some stage in the future? If so you must cancel the R85s at that time.

jem16

ermine wrote: »

the income tax threshold which is about 78K ISTR for this year (2012/13)

If only.

do I claim the tax back from the bank (Nat West and/or Cahoot) or from HMRC? I have always been on PAYE so I've never dealt with this sort of thing before.

You would need to claim tax already paid on interest from HMRC. Use form R40.

http://www.hmrc.gov.uk/forms/r40.pdf

CLAPTON

to claim your tax back for your earned income use a R50 form
http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=1CVVZ8XMWiI&formid=764


have you actually had any tax deducted from your savings yet?
if not them filling in R85 forms will prevent any tax being deducted.

ermine

Thanks guys - yes, I meant ~7 - 8 k Nat West has presumably deducted BRT since April 6 so far, I haven't opened the Cahoot account yet so there's a chance for a clean slate.

Since the tax allowance is applied across the entire year I guess I can only put my hand on my heart and say I was below the tax threshold when I get to April 6 next year and look back in the rear view mirror. I have some ISA income, some paltry income from the cash savings and some dividends from unwrapped shareholdings. I don't see the cash interest, dividends plus earnings so far go over the tax threshold

Is it the done thing to reclaim the Nat West before April next year or do people wait till filling in a tax return for account changes in flight? I don't need it this year from a cashflow perspective, but I'd hate to see HMRC get any more of my earnings than absolutely necessary. But I don't want to upset them by breaking with established pracitce if they say I have to abslutely know for dead certain I am below the tax threshold in this tax year.

grey_gym_sock

you're not supposed to fill in an R85 yet if you're just over the allowance this year. but if you pay too much tax (e.g. because some interest should be taxed at 0%, some at 20%), you can claim it back from HMRC later. so you get your money later, but don't lose out altogether.

if you may be paying income tax during this tax year but not next, it might be worth putting your money in an account which won't pay any interest until next tax year (6 april 2013 onwards), because it's when the interest is capitalized that counts, even though it's earned daily.

(ISA income is completely disregarded for tax.)

CLAPTON

it's perfectly acceptable to fill in a R85 if you think your income will be below the threshold for this year.
if it turns out differently you only need to write a letter to HMRC with the figures

unless your current savings people have actually made you any payments then no tax has been deducted yet so fill out those R85 asap

xylophone

http://www.hmrc.gov.uk/helpsheets/r85-helpsheet.pdf The R85 helpsheet.
"Form R85 Getting your interest without tax taken off
If you calculate that your annual income is lower than
your tax-free allowances you should complete form R85
Getting your interest without tax taken off, which came with
this helpsheet.
By completing form R85 you are telling your bank or building
society that you do not have to pay tax.
If your income goes up and that means that you should start
paying tax, you must tell each bank or building society with
whom you have an account. It is not their responsibility to
check that the information you have given on form R85 is true
or up-to-date. Please note however that we may check the
information you have given.
If you open a new account you will need to complete
another form R85.
If your bank or building society has already taken tax off
your interest in this tax year 2012–13, which runs
from 6 April 2012 to 5 April 2013, they may be able
to repay it to you.


See also http://www.hmrc.gov.uk/incometax/refund-reclaim.htm

and http://www.hmrc.gov.uk/tdsi/ten-per-cent-guidance.htm but the figures in the examples are out of date so see http://www.hmrc.gov.uk/rates/it.htm

ermine

Thanks guys - I'll get on to it with those R85s