Putting cash in savings ( self employed )

Hi . First post so sorry if it's in the wrong section .
Ok so I'm a self employed guy , I pay my own tax at the end of the year.
I have a savings pot , where I put all my lose change in , and I have saved over £500 in the last year ! My question is if I was to put this in a savings account would the tax man question it or would he even be able to see it ? As I won't bother putting it in a savings account if I got to pay tax on it .
Thanks

Replies

  • Archi_BaldArchi_Bald Forumite
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    Sparx8 wrote: »
    As I won't bother putting it in a savings account if I got to pay tax on it .

    That's not a very logical stance to take.

    If your money is profit from your business, it forms part of what you need to declare.

    If your money is savings from the salary you pay yourself, any tax will only be due on the interest you get from the money, not on the money itself . It's then a matter of basic maths.
    1. you don't put it into any bank account, you don't pay any tax. You get no interest, and your money loses purchasing power to inflation

    2. you put it into an account that pays no interest - same result as above.

    3. you put it into an account that pays interest, they will automatically withhold tax at 20%. You have to declare this interest together with your other income. You might have to pay additional tax if you are a higher rate or additional rate tax payer. This might still be worth it - e.g. a 5% AER account still pays a higher rate tax payer 3% after tax. For a BR tax payer, it is 4%.

      What you reckon is better - earning 3% or 4% interest after tax, or losing 1% to 2% to inflation?
  • Sparx8Sparx8 Forumite
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    Archi_Bald wrote: »
    That's not a very logical stance to take.

    If your money is profit from your business, it forms part of what you need to declare.

    If your money is savings from the salary you pay yourself, any tax will only be due on the interest you get from the money, not on the money itself . It's then a matter of basic maths.
    1. you don't put it into any bank account, you don't pay any tax. You get no interest, and your money loses purchasing power to inflation

    2. you put it into an account that pays no interest - same result as above.

    3. you put it into an account that pays interest, they will automatically withhold tax at 20%. You have to declare this interest together with your other income. You might have to pay additional tax if you are a higher rate or additional rate tax payer. This might still be worth it - e.g. a 5% AER account still pays a higher rate tax payer 3% after tax. For a BR tax payer, it is 4%.

      What you reckon is better - earning 3% or 4% interest after tax, or losing 1% to 2% to inflation?

    We'll hang on a minute !! If Ive already paid tax on the money I've saved in my pot . It's came out of my bank one way or another and lose change gets put into my pot . Therefore I have paid my 20% tax on it . So why would I pay another 20% tax on top . That makes sense
  • edited 31 January 2015 at 9:24PM
    Archi_BaldArchi_Bald Forumite
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    edited 31 January 2015 at 9:24PM
    Seems you have misunderstood. You are not paying tax on money you already paid tax on. As I said earlier: any tax will only be due on the interest you get from the money, not on the money itself

    So once more: Interest is new money. You pay tax on the new money. This applies to you and everyone else, unless they are exempt from tax because their earnings are below certain tresholds.

    EDIT: Perhaps an example will help:
    • You have saved up £100 and you put it in a 5% account
    • At the end of a year, you will have made £5 interest from it.
    • The bank will pay you £4, and will pay £1 to HMRC (assuming you are a BR tax payer).
    • i.e. you will have made £4 more than if you had hidden the money from the taxman
    • if you had hidden your money from the taxman, it would have lost purchasing power to inflation. At a very conservative 1% inflation, your £100 would only be worth £99 after a year.
  • HHarryHHarry Forumite
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    If a Customer pays you £10 in change and you throw this is the change pot, then this amount needs to be declared as part of your income on your tax return, and the appropriate tax paid.

    If you've taken fiver out of the bank, bought fish & chips and thrown the change into the pot you don't need to declare anything in your tax return.

    Either way you can pay the money into the bank. If you were the subject of a tax investigation they may query the cash deposit - but if you only pay in the money once in a blue moon when your change pot is full, the you can just tell the truth about where it's come from.
  • MojisolaMojisola Forumite
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    Why not just pay for shopping with cash?
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