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Personal Savings Allowance Tax Code

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Received a new tax code in February which showed a Personal Allowance of £11,000 and Personal Savings Allowance of £1,000. Also showed a figure for my state pension and an amount of Untaxed Interest of £1,950. Contacted HMRC via their online form to point out that I won't receive anything like the amount of Untaxed Income that they quoted. Received a new tax code - the amount of Untaxed Income had been removed but so had the PSA of £1,000. Does anyone know if the PSA of £1,000 should be showing as part of my tax code? Tried ringing them but couldn't understand the person I was speaking to.

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  • alternate
    alternate Posts: 703 Forumite
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    edited 26 May 2016 at 12:10PM
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    I think it is just the tax code letters that are unclearly worded.

    They do it to separate your income allowance from your interest allowance - as income allowance is against all income but interest, only against interest.

    So the first letter (assuming you had interest above £1000 per year) showed their estimate of how much interest you would earn and how much of it would be tax free.

    The second letter (when you told then your interest would be below £1000) showed no untaxed income over the allowance, so no need mention your allowance at all.

    I think they do it this way so people don't assume they can earn £1200 before paying tax on income - when really the allowance is £1100 + £1000 in interest.

    From their point of view - if they estimate (or go on what you told them) that you would have no interest over the allowance this year, then there is no need to confuse you by stating the allowance at all. If you should earn more they will deal with it on next years tax code.

    In the same way. If they estimate (based on past earnings) that you will be comfortably within the 20% basic tax bracket this year -there is no need to mention the existence of a 40% higher rate on your tax code letter. Even though your situation may change.
  • polymaff
    polymaff Posts: 3,905 Forumite
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    The "all or nothing" PAYE coding seems reasonably logical, doesn't it? Your PAYE code originally included two assumptions about your interest income in 2016/17. You protested, so they removed all assumptions.

    Long may we all have the option to opt out of Payments in Advance - a procedure which when introduced some years ago by HMRC was only meant to apply to a few rich people.

    Just like paying other than the basic rate of Income Tax was. :)
  • colsten
    colsten Posts: 17,597 Forumite
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    If you have told them that your income from interest will be zero, there's no point in showing a Personal Savings Allowance (PSA) as with zero interest income, you wouldn't benefit from an allowance on it.

    If you have told them that your income from interest will be more than zero, they should be showing your PSA, and both, your income from interest and your PSA should be reflected in your tax code.

    In either case, you and HMRC can only tell for certain how much interest you earned after you have earned it, i.e. after April 5 2017.

    If you had no PSA reduction in your tax code and your savings interest is below £1,000 (or below £500 if you are HR tax payer), all is fine. You did not pay any tax on your interest as none was due.

    If you had no PSA reduction in your tax code and your savings interest is above £1,000 (or above £500 if you are HR tax payer), you must tell the HMRC as tax will be due on the interest above £1,000 (/£500).
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