How to pay tax on 'savings'

kassy64

Hi, looking for advice, I recently retired and received a 'lump-sum' some of which has been put into a fixed rate bond.
My annual pension will take me over the tax threshold (£12,570) and the additional £5,000 savings allowance. So, my understanding is all I'm allowed is an additional £1,000 tax free savings allowance (plus any ISA i have).
Anyway, the long and short of this is i will be liable for about £250 in income tax from earned interest on the fixed bond.
I've just been on the gov.uk website and did the walk through whether I will need to do tax return and the answer was 'no'.
So, how do I declare this tax, is it done automatically through my tax code on my pension?
Thanks, if you can help.
PS gov.uk website only asked if my interest earned from savings/interest exceeded £10,000, which it won't but doesn't explain what to dop if the interest earned is below £10k

wiseonesomeofthetime

The savings provider will report it directly to HMRC and then HMRC will recover the tax through adjustment of your tax code.

kassy64

wiseonesomeofthetime said:

The savings provider will report it directly to HMRC and then HMRC will recover the tax through adjustment of your tax code.

Ok, many thanks for that, so basically i do 'nothing' which i like !
Just one point i have opened up a few accounts recently (Virgin & Charter Savings Bank) and have not been required to provide my NI number. I presume they confirm your identity by name,dob/address etc, surely NI would have been better.

RobM99

wiseonesomeofthetime said:

The savings provider will report it directly to HMRC and then HMRC will recover the tax through adjustment of your tax code.

Exactly this. 

Dazed_and_C0nfused

kassy64 said:

wiseonesomeofthetime said:

The savings provider will report it directly to HMRC and then HMRC will recover the tax through adjustment of your tax code.

Ok, many thanks for that, so basically i do 'nothing' which i like !
Just one point i have opened up a few accounts recently (Virgin & Charter Savings Bank) and have not been required to provide my NI number. I presume they confirm your identity by name,dob/address etc, surely NI would have been better.

Not sure why but for some reason you only need to provide a NINO when opening an ISA not a non ISA account.

Unless your interest reaches £10k you won't need to complete a Self Assessment return as a result of having the untaxed (but taxable) interest.

Given the level of your other income you are likely to find its a 3 year process.

Year 1.  You earn the interest

Year 2.  The bank/building society report details of the interest to HMRC.  HMRC then, where necessary, send you a calculation for year 1 showing the tax owed.  They also issue an amended tax code for year 2 on the basis you will receive the same interest again.  This tax code adjustment is not to collect any tax owed from year 1.

Year 3.  Your initial tax code for year 3 includes the same interest details as used in the calculation for year 1 and tax code for year 2 plus an adjustment to collect the tax owed from year 1

Once HMRC receive the interest details for year 2 they will, if necessary send you a calculation for year 3 (very small amounts tend to be ignored) and update year 3's tax code.

And so on each year.

And just to be clear, this is taxable interest and will be taxed if you have no spare Personal Allowance.  But the savings starter and savings nil rate (aka Personal Savings Allowance) are both currently 0%.

This might not make any difference to you but it does to some as the interest income is part of your adjusted net income.  Which means it can reduce any Married Couple's Allowance due or increase any High Income Child Benefit Charge payable.

kassy64

Dazed_and_C0nfused said:

kassy64 said:

wiseonesomeofthetime said:

The savings provider will report it directly to HMRC and then HMRC will recover the tax through adjustment of your tax code.

Ok, many thanks for that, so basically i do 'nothing' which i like !
Just one point i have opened up a few accounts recently (Virgin & Charter Savings Bank) and have not been required to provide my NI number. I presume they confirm your identity by name,dob/address etc, surely NI would have been better.

Not sure why but for some reason you only need to provide a NINO when opening an ISA not a non ISA account.

Unless your interest reaches £10k you won't need to complete a Self Assessment return as a result of having the untaxed (but taxable) interest.

Given the level of your other income you are likely to find its a 3 year process.

Year 1:. You earn the interest

Year 2:. The bank/building society report details of the interest to HMRC.  HMRC then, where necessary, send you a calculation for year 1 showing the tax owed.  They also issue an amended tax code for year 2 on the basis you will receive the same interest again.  This tax code adjustment is not to collect any tax owed from year 1.

Year 3.  Your initial tax code for year includes the same interest details as used in the calculation for year 1 and tax code for year 2 plus an adjustment to collect the tax owed from year 1

Once HMRC receive the interest details for year 2 they will, if necessary send you a calculation for year (very small amounts tend to be ignored) and update year 3's tax code (very small amounts aren't ignored for this).

And so on each year.

Many thanks for this detailed explanation, plus I will be a year behind that as well as I've only just retired and put the 'lump sum' into accounts earning interest so this financial year from now until April (6 months) I probably won't breach the barrier to pay tax on savings interest (less than £1,000).

Dazed_and_C0nfused

kassy64 said:

Dazed_and_C0nfused said:

kassy64 said:

wiseonesomeofthetime said:

The savings provider will report it directly to HMRC and then HMRC will recover the tax through adjustment of your tax code.

Ok, many thanks for that, so basically i do 'nothing' which i like !
Just one point i have opened up a few accounts recently (Virgin & Charter Savings Bank) and have not been required to provide my NI number. I presume they confirm your identity by name,dob/address etc, surely NI would have been better.

Not sure why but for some reason you only need to provide a NINO when opening an ISA not a non ISA account.

Unless your interest reaches £10k you won't need to complete a Self Assessment return as a result of having the untaxed (but taxable) interest.

Given the level of your other income you are likely to find its a 3 year process.

Year 1:. You earn the interest

Year 2:. The bank/building society report details of the interest to HMRC.  HMRC then, where necessary, send you a calculation for year 1 showing the tax owed.  They also issue an amended tax code for year 2 on the basis you will receive the same interest again.  This tax code adjustment is not to collect any tax owed from year 1.

Year 3.  Your initial tax code for year includes the same interest details as used in the calculation for year 1 and tax code for year 2 plus an adjustment to collect the tax owed from year 1

Once HMRC receive the interest details for year 2 they will, if necessary send you a calculation for year (very small amounts tend to be ignored) and update year 3's tax code (very small amounts aren't ignored for this).

And so on each year.

Many thanks for this detailed explanation, plus I will be a year behind that as well as I've only just retired and put the 'lump sum' into accounts earning interest so this financial year from now until April (6 months) I probably won't breach the barrier to pay tax on savings interest (less than £1,000).

So in that case you will be taxed (@ 0%) on what you receive in 2022:23 but the real impact will be from 2023:24, making that year 1 in my explanation.

RG2015

In the absence of the National Insurance number the savings provider must report on name, address and date of birth. I guess it is then down to their computer ID matching software.

I can report though that over the last few years I have had at least 50 savings accounts from about 20 providers correctly reported to HMRC. 

Bigwheels1111

If I fix at 5% or more I will need to pay some tax.
When interest is over 10k you need to fill out a tax return.
Very easy to do.

t0rt0ise

They didn't do as said here for me. Year one tax on savings they simply billed me and I paid it. There was no option to have it collected via tax code.

kassy64

t0rt0ise said:

They didn't do as said here for me. Year one tax on savings they simply billed me and I paid it. There was no option to have it collected via tax code.

Strange, we’re you in employment receiving a salary or in receipt of a pension at the time?