PAYE Tax on savings interest

MSaxp

Hi,

I am trying to understand how HMRC work out my PAYE tax code to account for interest for my savings account that needs to be taxed at the 40% band.

I told them my gross interest for the year is say £800 and they seem to have adjusted my tax code downwards by £800. In my mind, that means that I have £800 less tax free allowance and £800 more is taxed at 40%. Which sounds wrong, as I have already paid 20% tax on that £800 through the bank.

Am i missing something? Is there a chance HMRC say gross interest but mean after the bank deduction?

I cant believe I cant get my head around this, it's hardly rocket science!

Thanks,

Mike

guymo

MSaxp wrote: »

Hi,
I told them my gross interest for the year is say £800 and they seem to have adjusted my tax code downwards by £800. In my mind, that means that I have £800 less tax free allowance and £800 more is taxed at 40%. Which sounds wrong, as I have already paid 20% tax on that £800 through the bank.

I think you are right and that your tax code adjustment seems to be incorrect. I would call them.

p00hsticks

If it's something that has come about when looking back over last years tax, it could be because they've adjusted the code so as to not only get the extra 20% outstanding from the previous tax year but to also to collect what they think you will owe this year .

You need to watch it carefully if your savings fluctuate wildly up and down as in my expereince once they get an initial set of figures for additonal interest they'll tend to apply it year after year unless you tell them differently.

MSaxp

Thanks. My expectation is that the reduction of the allowance should be 50% of the gross interest received. So taxed at 40% it results in 20% of the gross interest which is the top-up i need to pay

I will speak to them and give them accurate values for every year. I believe they have assumed too much

xylophone

http://www.hmrc.gov.uk/incometax/non-paye-income.htm might be worth a look.

ColdIron

MSaxp wrote: »

I will speak to them and give them accurate values for every year. I believe they have assumed too much

If this will be an ongoing occurrence I'd suggest doing a self assessment each year. Now that they are online they are pretty easy and you will be more certain of your position