Self assessment - need to declare this interest?

TrickyThings

Hi all,

Need a little help me with a self assessment tax return question as that time is approaching.

For the past few years I've managed to earn a little extra cash outside of my PAYE job, hence I need to fill out a self assessment. The self assessment asks if I've earned any interest on money I'm declaring. Normally I can confidentially say no interest was earned, nice and simple. This year *may* be different and this is where things get confusing for me.

Three separate bank accounts are involved:

1). Lets call this my 'extra money' account. I make sure all the extra cash I earn outside of PAYE goes into this account. It is an interest-free account.

2). Lets call this my 'salary and bits' account. This account is where my salary goes in and most things (bills etc) go out. It is an interest-free account.

3). Let's call this my 'savings' account. This is where my savings go. This account earns interest.

This year, for unimportant reasons, I quickly needed some cash added to my 'savings' account. I decided I would get the cash needed - £300 - from the 'extra money' account. However, the money was not directly transferred from the 'extra money' account to the 'savings' account. If it had been, obviously I would need to declare the interest earned on it from the point it was transferred in, as clearly I have moved the money into an interest earning account.

Instead, I transferred the £300 from my 'extra money' account into my 'salary and bits' account. I then transferred £300 from my 'salary and bits' account into the 'savings' account and there it still sits today, unspent.

So my question is, from a self assessment point of view, has the £300 from my 'extra money' account ended up in a savings account (earning interest I need to declare) or not? If my 'salary and bits' account was completely empty, then it would be clear that the £300 has moved from the initial account to a middle account and ultimately on to an interest earning savings account. But it wasn't empty, far from it. So from a tax point of view, how can it be said that the £300 I transferred from the 'salary and bits' account into the 'savings' account was the same £300 that came from the initial 'extra cash' account?

The amount of interest is not my concern (unsurprisingly the interest earned off that £300 would be practically nothing), I just want to make sure I'm declaring correctly.

From my perspective, despite my intention (in my head) to move that £300 to the 'savings' account, in reality it was transferred to another interest free account and who's to say if the £300 I decided to transfer from that account to my 'savings' account was the same £300?

Very confused, all replies welcome.

Big thanks in advance to all.

CLAPTON

you have three accounts

after all you need to know is how much interest was paid over the 12 months of the tax year on each a/c

what you moved where or from where or with what intent is totally irrelevant

redpete

TrickyThings wrote: »

Very confused, all replies welcome

Clearly so, you are making this far too complicated.

It doesn't matter where the money came from that goes into each account, it doesn't matter when the money went into each account or how long it was there, it doesn't matter what your pet name for each account is nor what you intend for the purpose of each account.

All that matters is the total amount of interest that has been paid on the money in the accounts in the relevant tax year and whether the interest is taxed at source (i.e. does the bank pay tax on your behalf automatically).

TrickyThings

Hi both,

Thank you for replying. Yep accountancy is clearly not my thing, think getting an accountant is the way forward for me.

Sorry for being dumb, but if you could reply to the following I'd be really grateful.

You're both saying what account the money was in, when it was moved etc is completely irrelevant. But surely if money is moved from a no-interest account to an interest earning account at some point during a tax year, it does become relevant as that's the point at which it starts to earn interest which needs to be declared*?

As far as self assessment goes, when it asks "did you earn any interest on this money?" then which account the money is in is what actually dictates if any interest is earned surely? So when it was moved and to where becomes important.

*The point about does the bank tax at source is a very good one. It's just a regular HSBC savings account so although it earns interest, I'm sure it is also taxed at source, in which case there's nothing to declare anyway.

To be honest, the amount of interest earned in the entire savings account over a year, regardless of if the £300 money I earned was in that account or not, was so small I'll probably just declare the entire interest earned and give that to the tax man. At least that way I know nothing is undeclared and worst case, I've given the tax man more than I should have.

Thanks to you both.

K

jennifernil

Interest is just another source of income that you need to pay tax on. Probably you have already paid the tax as the bank deducts it first. Only if you pay higher rate tax do you need to pay extra over what has been deducted.

Which account the money is in, or for how long, or where you got it from is irrelevant.

Are you getting confused with interest being added to amounts you have invoiced, or anything like that? As I cannot see where it asks what you quoted.

I take it you are registered as self employed? When you do your return you enter your PAYE income on the Employment pages, your self employed on the Self Employed pages.

Unless you have a separate, interest earning, business account, all interest can just be declared under "bank interest already taxed" which is found somewhere else in the return.

(my OH has paper returns so not sure how the on line one is set out)

zygurat789

TrickyThings wrote: »

Hi both,

Thank you for replying. Yep accountancy is clearly not my thing, think getting an accountant is the way forward for me.

Sorry for being dumb, but if you could reply to the following I'd be really grateful.

You're both saying what account the money was in, when it was moved etc is completely irrelevant. But surely if money is moved from a no-interest account to an interest earning account at some point during a tax year, it does become relevant as that's the point at which it starts to earn interest which needs to be declared*?
The relevant items are the amount of interest received and the tax deducted

As far as self assessment goes, when it asks "did you earn any interest on this money?" then which account the money is in is what actually dictates if any interest is earned surely? So when it was moved and to where becomes important.
The tax return is quite a long document, it would be of considerable help if you could specify exactly where this occurs.

*The point about does the bank tax at source is a very good one. It's just a regular HSBC savings account so although it earns interest, I'm sure it is also taxed at source, in which case there's nothing to declare anyway.
NOT SO. You HAVE to declare all your income. HMRC helpfully gross up the net amount you have received and then deduct this tax you have suffered by deduction from your final liability.

To be honest, the amount of interest earned in the entire savings account over a year, regardless of if the £300 money I earned was in that account or not, was so small I'll probably just declare the entire interest earned and give that to the tax man. At least that way I know nothing is undeclared and worst case, I've given the tax man more than I should have.
That is the correct thing to do but you won't have given him anything.


Thanks to you both.

K

...................

CLAPTON

TrickyThings wrote: »

Hi both,

Thank you for replying. Yep accountancy is clearly not my thing, think getting an accountant is the way forward for me.

Sorry for being dumb, but if you could reply to the following I'd be really grateful.

You're both saying what account the money was in, when it was moved etc is completely irrelevant. But surely if money is moved from a no-interest account to an interest earning account at some point during a tax year, it does become relevant as that's the point at which it starts to earn interest which needs to be declared*?

As far as self assessment goes, when it asks "did you earn any interest on this money?" then which account the money is in is what actually dictates if any interest is earned surely? So when it was moved and to where becomes important.

*The point about does the bank tax at source is a very good one. It's just a regular HSBC savings account so although it earns interest, I'm sure it is also taxed at source, in which case there's nothing to declare anyway.

To be honest, the amount of interest earned in the entire savings account over a year, regardless of if the £300 money I earned was in that account or not, was so small I'll probably just declare the entire interest earned and give that to the tax man. At least that way I know nothing is undeclared and worst case, I've given the tax man more than I should have.

Thanks to you both.

K

just to add

It would seem you rather misunderstand the SE form


on the form you must declare ALL your income
whether than be from PAYE
or self employed earnings
or interest (except ISA)
or dividends (except in ISA)


the fact that some e.g. PAYE and interest will already be taxed is irrelevant : you must declare it on the form

HMRC will take into account that tax has already been paid when calculating how much you need to pay.

dzug1

TrickyThings wrote: »

But surely if money is moved from a no-interest account to an interest earning account at some point during a tax year, it does become relevant as that's the point at which it starts to earn interest which needs to be declared*?

It's only of relevance to the bank so that it can calculate the interest.


All you need to do is include the net amount in the taxed UK interest box on the tax form

TrickyThings

Thanks all.

I think my confusion was separating out my PAYE from what I earned in addition.

As I've not had to do self assessments in the past when all I earned was PAYE, I assumed what was happening with PAYE (interest wise) was irrelevant and was only concerned with the interest from the additional money, hence trying to track "where" that money was.

Now I understand I'm declaring all interest, including from PAYE, I get why you're all saying the accounts the money is in is meaningless.

Does seem a bit strange to me, as obviously you don't fill out self assessments when you're PAYE only, yet you're earning interest then, but if this is how HMRC do it, fine with me.

Thank you all for helping me understand.

WestonDave

For completeness if you are a higher rate tax payer then you would have to do a tax return and declare interest (even if taxed at source) even if all your "earnings" (other than interest etc) are under PAYE. This is because you'd need to pay the extra 20% on the interest as its only taxed at source at 20% whereas you are due to pay 40% on the top part of your income. PAYE will take care of the first part through tax codes etc but the interest needs to be "upped" manually through the tax return. For reference dividends on shares (if held outside an ISA) would also need to be declared for the same reason.

zygurat789

TrickyThings wrote: »

Thanks all.

I think my confusion was separating out my PAYE from what I earned in addition.

As I've not had to do self assessments in the past when all I earned was PAYE, I assumed what was happening with PAYE (interest wise) was irrelevant and was only concerned with the interest from the additional money, hence trying to track "where" that money was.

Now I understand I'm declaring all interest, including from PAYE, I get why you're all saying the accounts the money is in is meaningless.

Does seem a bit strange to me, as obviously you don't fill out self assessments when you're PAYE only, yet you're earning interest then, but if this is how HMRC do it, fine with me.

Thank you all for helping me understand.

That's not the case, it is because your income is not complicated enough to trigger a tax return. If your only income was earned £150,000pa on PAYE then you would have to fill in a tax return.
Anyone who pays tax at 40% or more will have to pay extra on any interest received which will have been taxed at only 20%.