Why do HMRC need to know interest earned with banks?

hubb

I don't understand when filing a tax return for self employment why they need to know my current and saving bank account interests earned for the year.

Tax has already been deducted within the accounts so no need for HMRC to tax again or am I missing something ?

jennifernil

If you reach higher rate tax, you would have extra tax to pay on your bank interest.

hubb

So if I don't hit the threshold it won't affect my tax then ?

jennifernil

If you are in the 20% bracket, then tax on bank interest is correct.

If you are below your personal allowance for total income, you can reclaim tax paid on interest.

Either way, you should still include it on your return.

closed

There's also a 10% band, which could apply if your non-savings earnings are miniscule.

If it were all in isa's, you wouldn't have to declare it.

getmore4less

hubb wrote: »

I don't understand when filing a tax return for self employment why they need to know my current and saving bank account interests earned for the year.

Tax has already been deducted within the accounts so no need for HMRC to tax again or am I missing something ?

You put the interest and the tax paid so you don't get taxed again

hubb

I'm still not clear on this. I have money in a saver account and I get the £5 a month Halifax reward for my current account. This will add up to a reasonable amount of interest earned but I have paid the tax on it. HMRC don't know that and may tax me again.

WHA

hubb wrote: »

HMRC don't know that and may tax me again.

Yes, they will know if you put it in the right box on the tax return. There's two boxes - one for gross interest where no tax has been deducted and another for net interest where tax has been deducted. Just get the right box and it works out right.

zygurat789

The tax return is a "bare your soul" document. The rules say you include all your taxable income. Interest is taxable income.

HMRC can also glean other information from a return such as large savings from low income indicating possible underdeclarations

hubb

Ok, now I understand.

I put as much money as I can from my drawings into a high interest savings account and use the money from that to pay my tax bill. It makes sense rather than complete your return in April and the money hasn't made you any interest. That's why I leave it till near the deadline to complete.

One last thing, does my Halifax £5 monthly reward count as interest or is this just a perk of the account that is not applicable as they haven't deducted tax ?

ceeforcat

hubb wrote: »

Ok, now I understand.

I put as much money as I can from my drawings into a high interest savings account and use the money from that to pay my tax bill. It makes sense rather than complete your return in April and the money hasn't made you any interest. That's why I leave it till near the deadline to complete.

One last thing, does my Halifax £5 monthly reward count as interest or is this just a perk of the account that is not applicable as they haven't deducted tax ?

It is definitely taxable. However it is paid WITH TAX DEDUCTED and should be shown in the same manner as the other accounts.