savings tax

dd95

i know that your bank will notify HMRC if your savings total is over the tax free threshold and HMRC will change your tax code for the next financial year to pay for this. What would happen however, if the year after your interest was within your annual allowance? Would you pay tax on it as per the previous year because of the change in tax code, or would the bank notify HMRC who would then change your code again so you do not pay tax the next year?

Dazed_and_C0nfused

Banks notify all taxable interest.  How would each bank know if you had to pay tax on it or not?

Any tax you pay during the year is just a provisional amount, if it turns out to be too much or too little HMRC will send you a calculation and refund the difference or explain how you will pay anything owed.

HMRC will change your tax code for the next financial year to pay for this

At the moment HMRC will be calculating tax owed for 2019:20.  And for most people they will pay anything owed for 2019:20 through an adjustment to their 2021:22 tax code, starting in April 2021.

dd95

thanks,

i wasng sure whether you would retain the same tax code for the year after even if you were within the tax free allowance and would then have to reclaim tax paid, or if HMRC would automatically change the code again

dd95

Dazed_and_C0nfused said:

Banks notify all taxable interest.  How would each bank know if you had to pay tax on it or not?

Any tax you pay during the year is just a provisional amount, if it turns out to be too much or too little HMRC will send you a calculation and refund the difference or explain how you will pay anything owed.

HMRC will change your tax code for the next financial year to pay for this

At the moment HMRC will be calculating tax owed for 2019:20.  And for most people they will pay anything owed for 2019:20 through an adjustment to their 2021:22 tax code, starting in April 2021.

wouldn't it be 2020:21 not 21:22?

Dazed_and_C0nfused

No, we are half way through 2020:21 now and HMRC only start collecting tax owed from a previous year when the next tax year starts.

So if they calculate the tax owed for 2019:20 now they only start collecting it from April 2021 (if it's possible to include it in your tax code)

Dazed_and_C0nfused

dd95 said:

thanks,

i wasng sure whether you would retain the same tax code for the year after even if you were within the tax free allowance and would then have to reclaim tax paid, or if HMRC would automatically change the code again

HMRC don't refund tax overpaid in a previous tax year by adjusting your tax code.

If you paid too much in say 2020:21 then when HMRC review that year this time next year then they will refund any tax overpaid direct to you.

dd95

sorry think im overcomplicating this... i didn't mean refund it the next year but would they change your code again as your interest is less than the allowance.

for example, if i had 250k in savings and had interest paid that was over the threshold in 2020:21. i then take 200k out and thus only have 50k in there and thus under the threshold in 21:22, same with 22:23 etc,  would they change my tax code as it's now under the threshold, or would they keep it the same but refund me from now on?

Dazed_and_C0nfused

I don't think banks tell HMRC how much savings you have, they just report the interest.

It should work something like this,

Banks should have sent HMRC details of the interest received in 2019:20.

HMRC will update your 2020:21 tax code this summer using the interest figures for 2019:20 (as an estimate for 2020:21).

Next summer the banks will send HMRC the interest details for 2020:21.  

HMRC will review the tax you have paid for 2020:21 and, if necessary, send you a refund or bill for any tax owed.

HMRC will also update your 2021:22 tax code using the interest details from 2020:21 (as an estimate for 2021:22).  

And so on each year.