Tax on Savings Interest

chile_paul

Apologies if this is a bit of a daft question, but.....

About 18 months ago I got a promotion at work which took my salary up into the 40% tax band. I had (perhaps naively) assumed that via my NI number my banks would be informed that they'd need to start taxing my savings account interest at 40% as well.

However I've just noticed that my savings account interest is still being taxed at 20%.

Do I need to inform my bank that this is wrong, or HMRC (I don't have to do self assessment forms, it's all via PAYE).

If I inform HMRC will they recover the unpaid tax from the last 18 months (won't be a major drama, I can't imagine its anymore than £5 to be honest)

Linton

You inform HMRC - interest payers can only deduct standard rate tax as they dont know your tax situation. I think HMRC will recover the unpaid tax by adjustment of your tax code.

colsten

Banks will only ever take 20% from your interest. You are legally obliged to tell the HMRC of any untaxed income. Just ring them and tell them, they will adjust your tax code. Or you can do a self-assessment even if you aren't required to do one. I do the latter, find that simpler than spending time on the phone and then having to check whether they worked out a correct tax code.

BTW, you can reduce your taxable income by increasing your pension contributions.

chile_paul

colsten wrote: »

Banks will only ever take 20% from your interest. You are legally obliged to tell the HMRC of any untaxed income. Just ring them and tell them, they will adjust your tax code. Or you can do a self-assessment even if you aren't required to do one. I do the latter, find that simpler than spending time on the phone and then having to check whether they worked out a correct tax code.

BTW, you can reduce your taxable income by increasing your pension contributions.

OK, thanks for the guidance. I'd just assumed that there would be a 'system' in place for this so the banks taxed at the appropriate rate, or so that the HMRC picked up the information on the interest earned via your NI code. Surely there would be lots of people out there who just never inform HMRC either because they didn't realise they had to or because they were being dishonest

brendon

chile_paul wrote: »

I had (perhaps naively) assumed that via my NI number my banks would be informed that they'd need to start taxing my savings account interest at 40% as well.

In general, the banks do not ask for your national insurance number when you sign up for a current or savings account. It is only needed for ISAs (although some banks may ask for it and keep it on record). So, in short, the bank has no knowledge of your tax status and this data isn't provided to them by HMRC.

chile_paul wrote: »

Do I need to inform my bank that this is wrong, or HMRC (I don't have to do self assessment forms, it's all via PAYE).

Your bank will not be able to deduct 40% interest at source. You'll have to either write/phone HMRC every year, or fill out a self assessment. I'd personally fill out a self assessment... they are really quite simple to fill out, takes about 30 minutes a year answering question-by-question.

lejog2003

chile_paul wrote: »

OK, thanks for the guidance. I'd just assumed that there would be a 'system' in place for this so the banks taxed at the appropriate rate, or so that the HMRC picked up the information on the interest earned via your NI code. Surely there would be lots of people out there who just never inform HMRC either because they didn't realise they had to or because they were being dishonest

This was quite a long time ago, but when I started paying higher rates of income tax, HMRC required me to complete a tax return and did so every year until I retired - I always had relatively small interest payments that weren't covered by PAYE.

Edit: Banks making interest payments have to submit details of all interest paid to the HMRC, this data includes name and address and NI number if known. So it is possible for HMRC to collate a taxpayers total PAYE income and interest income. Whether or not (or when?) they do so is another question.

mgdavid

lejog2003 wrote: »

......
Edit: Banks making interest payments have to submit details of all interest paid to the HMRC, this data includes name and address and NI number if known. So it is possible for HMRC to collate a taxpayers total PAYE income and interest income. Whether or not (or when?) they do so is another question.

HMRC use this information to find out who is trying to dodge tax on interest. It remains the responsibility of the individual to declare, usually by completing a self-assessment tax return, for amounts not covered by PAYE.

OP - never assume!