How do I pay tax on NS&I gross interest?

Alexland

dont_use_vistaprint wrote: »

Are there any other similar practical things to do to reduce tax in that range for PAYE , PAYE + small consultancy income on tax return (i.e not Ltd)

Lots of things to do depending on your circumstances. For example at work we both qualify for free family medical cover (as a taxable benefit) so I decline it but my wife takes it so I am covered on her policy and as she is part time it is only taxed at her basic rate.

Alex

AirlieBird

Tom99 wrote: »

[FONT=Verdana, sans-serif]Out of interest what tax will you pay if in 2017-18 if your salary is £44,500 and you have £1,000 interest.

[/FONT] [FONT=Verdana, sans-serif]£44,500+£1,000=£45,500 so higher rate tax payer and £500 interest is taxable.

[/FONT] [FONT=Verdana, sans-serif]But since you still have £500 headroom above your salary before hitting the £45,000 threshold would you only pay 20% tax on the £500?

[/FONT] [FONT=Verdana, sans-serif]ie you are a higher rate taxpayer but you don't pay any tax at 40%?[/FONT]

No, you pay 40% on £500. All the interest is taxable which takes your taxable income in to the higher rate band, giving you a PSA of £500.

All interest earned is counted against any remaining basic rate band with the personal savings allowance being taxed at a nil rate.

After earnings you have £500 of your basic rate band left which is taken by the first £500 of interest. As this is your PSA it is taxed at 0% instead of the usual 20%. The remaining £500 falls within the higher rate band and so is taxed at 40%.

Tom99

AirlieBird wrote: »

No, you pay 40% on £500. All the interest is taxable which takes your taxable income in to the higher rate band, giving you a PSA of £500.

All interest earned is counted against any remaining basic rate band with the personal savings allowance being taxed at a nil rate.

After earnings you have £500 of your basic rate band left which is taken by the first £500 of interest. As this is your PSA it is taxed at 0% instead of the usual 20%. The remaining £500 falls within the higher rate band and so is taxed at 40%.

[FONT=Verdana, sans-serif]Ok thanks. If you feed £45,000 salary and £1,000 interest into HMRC tax checker:

[/FONT] [FONT=Verdana, sans-serif]http://stccalculator.hmrc.gov.uk/UserDetails.aspx[/FONT]

[FONT=Verdana, sans-serif]It seems to tax all of the £1,000 interest not just £500 of it ie:

[/FONT] [FONT=Verdana, sans-serif]£45,000-£11500=£33,500*20%=£6,700[/FONT]
[FONT=Verdana, sans-serif]£1000*40%=£400[/FONT]
[FONT=Verdana, sans-serif]Total Tax = £7,100

[/FONT] [FONT=Verdana, sans-serif]Am I doing something wrong?[/FONT]

rathernot

ValiantSon wrote: »

You don't have to do a tax return. The banks are supposed to inform HMRC of the interest earned and HMRC will adjust your tax code (or possibly request payment of tax due) if you exceed your allowance.

Now that is very interesting.

It would be NS&I so they are the Government.

AirlieBird

Tom99 wrote: »

[FONT=Verdana, sans-serif]Ok thanks. If you feed £45,000 salary and £1,000 interest into HMRC tax checker:

[/FONT] [FONT=Verdana, sans-serif]http://stccalculator.hmrc.gov.uk/UserDetails.aspx[/FONT]

[FONT=Verdana, sans-serif]It seems to tax all of the £1,000 interest not just £500 of it ie:

[/FONT] [FONT=Verdana, sans-serif]£45,000-£11500=£33,500*20%=£6,700[/FONT]
[FONT=Verdana, sans-serif]£1000*40%=£400[/FONT]
[FONT=Verdana, sans-serif]Total Tax = £7,100

[/FONT] [FONT=Verdana, sans-serif]Am I doing something wrong?[/FONT]

That calculator doesn't include the PSA. The instructions are that you should only enter the amount of untaxed interest after deducting the PSA. This would give you the calculation in your original question. I'm not convinced that is correct. :think:

Tom99

AirlieBird wrote: »

That calculator doesn't include the PSA. The instructions are that you should only enter the amount of untaxed interest after deducting the PSA. This would give you the calculation in your original question. I'm not convinced that is correct. :think:

[FONT=Verdana, sans-serif]Where does it say that? According to the glossary:

[/FONT] [FONT=Verdana, sans-serif][FONT=Verdana, sans-serif]UK interest that has not been taxed[/FONT]

[/FONT] [FONT=Verdana, sans-serif]The total amount of any untaxed bank or building society interest you have received in the tax year. [/FONT]

Dazed_and_confused

You need to read further down where the link in your post takes you,


For tax years 2016/2017 onwards, only include the amount of untaxed interest that is above your Personal Savings Allowance, for example if you are a basic rate taxpayer and the untaxed interest received was £1200, enter £200.

I think AirlieBird is correct though, still doesn't seem to give the correct answer.

Tom99

Dazed_and_confused wrote: »

You need to read further down where the link in your post takes you,


For tax years 2016/2017 onwards, only include the amount of untaxed interest that is above your Personal Savings Allowance, for example if you are a basic rate taxpayer and the untaxed interest received was £1200, enter £200.

I think AirlieBird is correct though, still doesn't seem to give the correct answer.

[FONT=Verdana, sans-serif]Yes I see that now. Not much of a tax calculator when you 1st have to work out if you are a higher rate taxpayer, which the calculator could easily do for you.[/FONT]