income from untaxed interest

MrsLettuce

Hi, I have recently notified HMRC of various changes to my circumstances and today I received revised tax codes for 2017/2018 and 2021/2022 on each of these they show untaxed interest. I am a basic rate taxpayer with interest on savings well below the £1000.00 per year. I rang HMRC who agreed that on my capital and interest I should not have this added as income and to supply bank statements as the bank have given them the information. I have contacted the bank who say that the error is with HMRC.  My husband has checked his tax and they have taken untaxed interest as income from him too. I know that it is only a relatively small amount and I will get it back once HMRC have seen the statements but how many people is this happening to. I have seen posts on mumsnet where this has happened. Do banks notify HMRC of the actual interest paid and then do HMRC take anything above 1000.00 as income. I asked the bank and they didn't know! Any ideas?
Thanks. 

eskbanker

Tax codes themselves are really only a mechanism to drive PAYE tax deductions, so what is more important is the actual annual income tax calculation, where they tot up all taxable income and apply the appropriate deductions regardless of what's been stated in coding notices.  Do you both have visibility of the actual calculations showing how much tax was deducted?

MrsLettuce

Yes, they have sent us revised calculations showing the interest as income which has been added into the total income and taxed accordingly and change of tax code issued. 

eskbanker

MrsLettuce said:

Yes, they have sent us revised calculations showing the interest as income which has been added into the total income and taxed accordingly and change of tax code issued. 

They might be correct - interest is taxable income but the rate applied is 0% within the personal savings 'allowance', so it's right to show it as income, but the first £1,000 shouldn't actually result in additional tax being payable, so there should be an entry illustrating that.  How much of the statement are you able and willing to share on here?

MrsLettuce

Like I said I have spoken to HMRC and they agree I don't have enough interest for it to be taxed but they have added it to my total income which is then shown as taxed. They have adjusted this years for me whilst I was talking to them on the phone and will adjust previous years on receipt of statements. Not really happy to share any documents just wondering if anyone else had come across it and if it is a common issue.
Thanks

Dazed_and_C0nfused

Interest, outside of ISA's is taxable and is part of your total taxable income.

HMRC will not just ignore it or remove it from a calculation just because you believe it shouldn't be there.

Could you give some idea of how the calculation you have received is made up? 

You cannot have just received a new tax code for 2017:18 as tax codes are only ever issued just before the tax starts (Jan 2017- 5 April 2017 for 2017:18) or during the tax year (6 April 2017 to 5 April 2018).

How is your 2021:22 tax code made up?

eskbanker

MrsLettuce said:

Like I said I have spoken to HMRC and they agree I don't have enough interest for it to be taxed but they have added it to my total income which is then shown as taxed.

As above, it's correct to include interest as taxable income, but up to £1,000 should be taxed at 0%.

MrsLettuce said:

They have adjusted this years for me whilst I was talking to them on the phone and will adjust previous years on receipt of statements. Not really happy to share any documents just wondering if anyone else had come across it and if it is a common issue.

It's a common issue not to understand that interest is actually taxable income, but that still doesn't necessarily mean that they haven't made a mistake in one form or another, even if it's not what you thought it was - however, without further details of your specific actual issue it's difficult to offer any concrete guidance....