Savings interest and Tax code

Mich71

Hi, i've noticed today that my tax code has been reduced by £3 to 12497. I'm on a low income of £8400 and only have savings in an ISA so i don't understand why the tax office have deducted an amount for tax on savings interest off my tax code? The tax office have said that this is correct as i won't earn over the £12500 tax allowance but i'm confused as i've also read that if my earnings and savings interest are less than £18500 then i won't pay any tax on my savings interest.

Can anyone explain in plain english??

Thanks.

talexuser

A possible explanation is you owe 60 pence tax from a previous tax year, this would add £3 to your taxable income in a following year for repayment (20% of £3 = £0.60).

Another explanation based on my experience of savings interest calculations by HMRC is that it is just wrong!

eskbanker

I suspect that HMRC must believe (presumably based on info supplied by a financial institution) that you have a small amount of non-ISA savings.

Even though you won't pay tax on these if you're a low earner, they're technically taxable at 0% rather than tax-free, which is where the highly complex world of HMRC tax rules starts to diverge from what most would consider plain English! So even though you may (not unreasonably) interpret a reduction in tax code as meaning that you'll pay more tax, it doesn't necessarily work out that way.

Obviously if your only non-ISA income is £8400 then it's all irrelevant anyway (although understandable that you feel it's inaccurate) but did you receive any other income in the last tax year or this?

New_York_No1_fan

Hubbie, a non tax payer, also had his personal tax code tweaked by a deduction of 10 to his tax code this week and hence rang HMRC to query, as his circumstances had unchanged.

He was told it was to allow for savings based on last years savings figures. As he still didn’t earn the £1000 of interest allowed , he queried this stating he would not earn over this in the current tax year either.

Apparently, according to the advisor, a new system has kicked in, unbeknown to the majority of the population, I guess. Now us mere mortals have to ring up after April, when we have received our P60s and details of any tax earned on savings and then they will tell us what we already know, I.e we haven’t earned enough to pay any tax!!!
Then they will adjust our tax accordingly for the following year. This is called closing the tax year down.

So that’s the vast majority of the country phoning HMRC from next April. Defo gonna be on hold for a serious amount of time.

And this is called progress.
:rotfl::rotfl: