Taxation of gross savings interest - how & when?

Oblivion

For years I haven't had to fill in a tax return because my works pension + my state pension + plus my building society net interest have been well within the 20% tax band and HMRC have received the figures automatically and notify me of my tax code for the coming year.

However, in 2016/17 all interest has been paid gross and I have received quite a lot more than the £1,000 savings allowance so will have to pay tax on the balance.

I have received my tax code for 2017/18 back in January 2017 and it makes no mention of any adjustment for this excess gross interest received, but then of course they wouldn't have known the exact figures at that point anyway.

Can I simply sit back and assume I will get a revised tax code later in the year when presumably the building societies will have submitted interest payment details for 2016/17 to HMRC, or do I have to be pro-active and contact HMRC myself (something I would dread)?

Pennywise

Oblivion wrote: »

or do I have to be pro-active and contact HMRC myself (something I would dread)?

Yes, you do need to contact HMRC to tell them. Although, these days, I believe you can do it via your "personal tax account" which I'm told is relatively easy to set up via the HMRC website.

xylophone

https://www.gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

HMRC will normally collect the tax by changing your tax code. Banks and building societies will give HMRC the information they need to do this.

If you fill in a Self Assessment tax return you should carry on doing this as normal.

http://www.taxvol.org.uk/download/HMRCs-guide-to-the-Personal-Savings-Allowance.pdf

https://www.gov.uk/personal-tax-account

Oblivion

xylophone wrote: »

https://www.gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

HMRC will normally collect the tax by changing your tax code. Banks and building societies will give HMRC the information they need to do this.

Well there it is in black and white ... it seems I don't need to do anything and HMRC will issue a new tax code when the Building Societies have given them the information. Any dispute and I can quote that back at them. :j

Pennywise

Oblivion wrote: »

Well there it is in black and white ... it seems I don't need to do anything and HMRC will issue a new tax code when the Building Societies have given them the information. Any dispute and I can quote that back at them. :j

As long as you realise you'll always be behind as HMRC will receive information long after the event, so your tax code will never be right. You'll have prior year adjustments every year. Not a problem if your interest will be similar every year, but if you have big fluctuations from year to year, you'd be better telling HMRC proactively so that they can amend your tax code during the year.

(It's also your responsibility to check you're paying the right amount of tax, and it's possible your bank won't tell HMRC the right figures, or that HMRC won't update your record correctly), so you'd need to check your PAYE codes are correct every time HMRC issue a revision.

xylophone

More detail in the second link above:-


We estimate that around 5% of people will have savings
income above their Personal Savings Allowance and will
therefore need to pay tax on this income.
Where possible we’ll identify these people from the
information we receive about the account interest paid from
banks and building societies.
We’ll then be able to support them in the following ways:
• around two in three of those with tax to pay already
complete a tax return each year and will report their
savings income in this way
• around one in three of those affected taxpayers do not
complete tax returns. The tax they owe will be taken out
of their PAYE income automatically, by an adjustment in
their tax code, spread across the year. This is our normal
practice where tax is owed by people who receive an
income through PAYE and they will receive a coding
notice. For those paying tax via PAYE, but who have a joint
account, things aren’t quite as straightforward but again
we’ll write to you in autumn setting out your options
• there will be some who have tax to pay on their savings
income but: do not currently complete a tax return;
have little or no PAYE income, so can’t pay the tax owed
through an adjustment to their tax code; or whose
account isn’t in their sole name.
We’ll write to this group in the autumn laying out how
we’ll support them to pay the tax due — such as by a
direct payment.

Oblivion

Pennywise wrote: »

As long as you realise you'll always be behind as HMRC will receive information long after the event, so your tax code will never be right. You'll have prior year adjustments every year. Not a problem if your interest will be similar every year, but if you have big fluctuations from year to year, you'd be better telling HMRC proactively so that they can amend your tax code during the year.

(It's also your responsibility to check you're paying the right amount of tax, and it's possible your bank won't tell HMRC the right figures, or that HMRC won't update your record correctly), so you'd need to check your PAYE codes are correct every time HMRC issue a revision.

Actually I don't mind that at all. I keep comprehensive spreadsheet data of all my interest receipts as well as my own calculations of tax due each year so it's easy to keep track of HMRC's accuracy on an ongoing basis.

I'll probably wait until the end of September and if I haven't received a revised coding by then I'll waste a few hours of my life in trying to contact them.

Oblivion

xylophone wrote: »

More detail in the second link above:-


We estimate that around 5% of people will have savings
income above their Personal Savings Allowance and will
therefore need to pay tax on this income.
Where possible we’ll identify these people from the
information we receive about the account interest paid from
banks and building societies.
We’ll then be able to support them in the following ways:
• around two in three of those with tax to pay already
complete a tax return each year and will report their
savings income in this way
• around one in three of those affected taxpayers do not
complete tax returns. The tax they owe will be taken out
of their PAYE income automatically, by an adjustment in
their tax code, spread across the year. This is our normal
practice where tax is owed by people who receive an
income through PAYE and they will receive a coding
notice. For those paying tax via PAYE, but who have a joint
account, things aren’t quite as straightforward but again
we’ll write to you in autumn setting out your options
• there will be some who have tax to pay on their savings
income but: do not currently complete a tax return;
have little or no PAYE income, so can’t pay the tax owed
through an adjustment to their tax code; or whose
account isn’t in their sole name.
We’ll write to this group in the autumn laying out how
we’ll support them to pay the tax due — such as by a
direct payment.

More good news, so HMRC will need to contact me, not the other way around.

agrinnall

Pennywise wrote: »

As long as you realise you'll always be behind as HMRC will receive information long after the event, so your tax code will never be right. You'll have prior year adjustments every year. Not a problem if your interest will be similar every year, but if you have big fluctuations from year to year, you'd be better telling HMRC proactively so that they can amend your tax code during the year.

(It's also your responsibility to check you're paying the right amount of tax, and it's possible your bank won't tell HMRC the right figures, or that HMRC won't update your record correctly), so you'd need to check your PAYE codes are correct every time HMRC issue a revision.

Are you suggesting that HMRC won't do the necessary calculations and adjust tax codes in the tax year following the one in which the interest was earned? You might be right if that's what you do think, but I would have thought that they ought to be able to collect the information and apply it within 12 months, so by the end of that year any tax due will have been collected (obviously if it takes them a long time it could result in the tax being collected in a small number of pay periods, which is not ideal).

badmemory

Won't they do an adjustment to this years tax code to allow for last years taxable interest and then double it to allow for the current tax years taxable interest? Then next year hopefully put it back down to what it should be. Of course, if you spend it you will have to tell them.

I will just sit here waiting patiently for the first explosion of wrath when they ask someone what they have spent their savings on.

isasmurf

agrinnall wrote: »

Are you suggesting that HMRC won't do the necessary calculations and adjust tax codes in the tax year following the one in which the interest was earned? You might be right if that's what you do think, but I would have thought that they ought to be able to collect the information and apply it within 12 months, so by the end of that year any tax due will have been collected (obviously if it takes them a long time it could result in the tax being collected in a small number of pay periods, which is not ideal).

If its under £3000 the tax will be collected through the tax code in the first full year after you've been notified, so tax due on interest in 16/17 will be collected in 18/19.

They may use the information to estimate interest for 17/18 and adjust this year's tax code accordingly.