Savings Interest Tax Payment

benten69

Hi all, noticed today I made a slight error and put money into a Fixed Rate Bond where the interest will be over my PSA (higher rate earner) and I cannot close the account early.

Essentially the interest will be £550 paid next year which means I will need to pay tax on the £50 (at 41% due to living in Scotland), so just £20.50 of tax.

I am aware the usual process is for HMRC to change your tax code and reduce your personal tax free rate to claim back the tax through PAYE, which from what I understand would mean HMRC reduce my tax free allowance by £100 so that I pay 21% tax on an extra £100 of income and hence pay back the £21 that way.

I would prefer to just pay off the tax due and not have HMRC messing with my tax code for the sake of £20-ish. The bond is due to end any pay out next Sept so HMRC will be informed some time between then and 5th April 2024.

What I was wondering, is can I simply call HMRC in advance and pay the tax before they change the tax code or ask them to not change my tax code and just send me a bill for the tax due?

If this is possible, when is the best time to call them? Within a month of the interest being paid or a few weeks before end of the tax year or some other time?

eskbanker

You should be able to do this online via your personal tax account, but even if you could adjust anything for 2023/24 now, personally I'd leave it for a good while yet - HMRC won't be informed of the interest until mid 2024 and any resultant PAYE code changes would be applied in 2025/26 (or you could pay in January 2025), so there's a lot of water to flow under the bridge between now and then!

Savings interest is taxed at harmonised UK rates even in Scotland, so 40%....

benten69

Perfect, thanks! 

Dazed_and_C0nfused

benten69 said:

Hi all, noticed today I made a slight error and put money into a Fixed Rate Bond where the interest will be over my PSA (higher rate earner) and I cannot close the account early.

Essentially the interest will be £550 paid next year which means I will need to pay tax on the £50 (at 41% due to living in Scotland), so just £20.50 of tax.
The Scottish government doesn't have the ability to set tax rates for interest (or dividends) so tax will be charged at 0% (savings nil rate) and/or 40% on anything falling in your higher rate band

I am aware the usual process is for HMRC to change your tax code and reduce your personal tax free rate to claim back the tax through PAYE, which from what I understand would mean HMRC reduce my tax free allowance by £100 so that I pay 21% tax on an extra £100 of income and hence pay back the £21 that way.
If you were already paying higher rate tax on PAYE it would be a £48 deduction (to collect £20.00)

I would prefer to just pay off the tax due and not have HMRC messing with my tax code for the sake of £20-ish. The bond is due to end any pay out next Sept so HMRC will be informed some time between then and 5th April 2024.
Banks and building societies don't need to notify HMRC until 30 June after the end of the tax year so it's likely to be summer/autumn 2024 before HMRC act on the information received

What I was wondering, is can I simply call HMRC in advance and pay the tax before they change the tax code or ask them to not change my tax code and just send me a bill for the tax due?
No.  You can pay it earlier than necessary by having a tax code adjustment during 2023:24 but that's your only option.  Otherwise you simply need to wait for your 2023:24 P800 calculation to be issued and then make payment between then and your 2025:26 tax code being calculated.

If this is possible, when is the best time to call them? Within a month of the interest being paid or a few weeks before end of the tax year or some other time?

See comments in bold.

You will also find your 2024:25 tax code is provisionally adjusted to collect the (estimated) tax due on interest for that tax year on the assumption you will receive the same amount of interest again.

And you may find HMRC simply don't bother asking you for the tax for 2023:24 if it is as small as £20.

RG2015

Dazed_and_C0nfused said:

benten69 said:

Hi all, noticed today I made a slight error and put money into a Fixed Rate Bond where the interest will be over my PSA (higher rate earner) and I cannot close the account early.

Essentially the interest will be £550 paid next year which means I will need to pay tax on the £50 (at 41% due to living in Scotland), so just £20.50 of tax.
The Scottish government doesn't have the ability to set tax rates for interest (or dividends) so tax will be charged at 0% (savings nil rate) and/or 40% on anything falling in your higher rate band

I am aware the usual process is for HMRC to change your tax code and reduce your personal tax free rate to claim back the tax through PAYE, which from what I understand would mean HMRC reduce my tax free allowance by £100 so that I pay 21% tax on an extra £100 of income and hence pay back the £21 that way.
If you were already paying higher rate tax on PAYE it would be a £48 deduction (to collect £20.00)

I would prefer to just pay off the tax due and not have HMRC messing with my tax code for the sake of £20-ish. The bond is due to end any pay out next Sept so HMRC will be informed some time between then and 5th April 2024.
Banks and building societies don't need to notify HMRC until 30 June after the end of the tax year so it's likely to be summer/autumn 2024 before HMRC act on the information received

What I was wondering, is can I simply call HMRC in advance and pay the tax before they change the tax code or ask them to not change my tax code and just send me a bill for the tax due?
No.  You can pay it earlier than necessary by having a tax code adjustment during 2023:24 but that's your only option.  Otherwise you simply need to wait for your 2023:24 P800 calculation to be issued and then make payment between then and your 2025:26 tax code being calculated.

If this is possible, when is the best time to call them? Within a month of the interest being paid or a few weeks before end of the tax year or some other time?

See comments in bold.

You will also find your 2024:25 tax code is provisionally adjusted to collect the (estimated) tax due on interest for that tax year on the assumption you will receive the same amount of interest again.

And you may find HMRC simply don't bother asking you for the tax for 2023:24 if it is as small as £20.

How large a figure may HMRC consider to be too small, £50 maybe?

And if I know that I have not paid this £50 two or three years after the year to which it applied, am required to declare it?

Dazed_and_C0nfused

RG2015 said:

Dazed_and_C0nfused said:

benten69 said:

Hi all, noticed today I made a slight error and put money into a Fixed Rate Bond where the interest will be over my PSA (higher rate earner) and I cannot close the account early.

Essentially the interest will be £550 paid next year which means I will need to pay tax on the £50 (at 41% due to living in Scotland), so just £20.50 of tax.
The Scottish government doesn't have the ability to set tax rates for interest (or dividends) so tax will be charged at 0% (savings nil rate) and/or 40% on anything falling in your higher rate band

I am aware the usual process is for HMRC to change your tax code and reduce your personal tax free rate to claim back the tax through PAYE, which from what I understand would mean HMRC reduce my tax free allowance by £100 so that I pay 21% tax on an extra £100 of income and hence pay back the £21 that way.
If you were already paying higher rate tax on PAYE it would be a £48 deduction (to collect £20.00)

I would prefer to just pay off the tax due and not have HMRC messing with my tax code for the sake of £20-ish. The bond is due to end any pay out next Sept so HMRC will be informed some time between then and 5th April 2024.
Banks and building societies don't need to notify HMRC until 30 June after the end of the tax year so it's likely to be summer/autumn 2024 before HMRC act on the information received

What I was wondering, is can I simply call HMRC in advance and pay the tax before they change the tax code or ask them to not change my tax code and just send me a bill for the tax due?
No.  You can pay it earlier than necessary by having a tax code adjustment during 2023:24 but that's your only option.  Otherwise you simply need to wait for your 2023:24 P800 calculation to be issued and then make payment between then and your 2025:26 tax code being calculated.

If this is possible, when is the best time to call them? Within a month of the interest being paid or a few weeks before end of the tax year or some other time?

See comments in bold.

You will also find your 2024:25 tax code is provisionally adjusted to collect the (estimated) tax due on interest for that tax year on the assumption you will receive the same amount of interest again.

And you may find HMRC simply don't bother asking you for the tax for 2023:24 if it is as small as £20.

How large a figure may HMRC consider to be too small, £50 maybe?

And if I know that I have not paid this £50 two or three years after the year to which it applied, am required to declare it?

This is very old now so I don't know if it's still relevant but the end of this article makes an interesting read.

https://amp.theguardian.com/money/2011/jun/28/pay-as-you-earn-errors

Sensory

Precisely why I don't trust HMRC messing with my tax code and my tax obligations with their belated erroneous lackadaisical half-a***** estimates.

pecunianonolet

In theory, what happens if you are a higher rate earner today and would instead of your PSA of 500 make 1000 interest in 23/24. In theory you would be taxed on the additional 500 the following year through adjustment.

Let's assume in 23/24 you are over your PSA limit and in 24/25 you have no income because you either given up your job or even left the UK to work/retire in a sunny place and become liable to tax there while you still have savings in UK accounts.

HMRC could amend the tax code to almost whatever they want because it would be 5000 plus free allowance of the newly adjusted code plus full PSA you in 24/25 before you would be liable? [Excluding the fact that income in UK through savings most likely would need to be declared at that place in the sun and would be taxed accordingly]

benten69

Dazed_and_C0nfused said:

What I was wondering, is can I simply call HMRC in advance and pay the tax before they change the tax code or ask them to not change my tax code and just send me a bill for the tax due?

No.  You can pay it earlier than necessary by having a tax code adjustment during 2023:24 but that's your only option.  Otherwise you simply need to wait for your 2023:24 P800 calculation to be issued and then make payment between then and your 2025:26 tax code being calculated.

Maybe it’s just me and how I am reading it, but it sounds like a contradiction in your response here.

First you state that no, I cannot contact HMRC, then after you state that once the P800 is calculated I could pay it before they change the tax code for 2025/2026?

So just to clarify am I right in saying the following…

Bank will advice HMRC in summer 2024 about interest paid at end of 2023

HMRC will do their calcs between summer and Nov 2024 to determine I owe a bit more in tax due to interest.

If I want, I can simply login to my Personal Tax Account online, see any tax due and pay it there and then.

If I pay as above, my 2025/2026 tax code will not change?

Is that about right?

Dazed_and_C0nfused

benten69 said:

Dazed_and_C0nfused said:

What I was wondering, is can I simply call HMRC in advance and pay the tax before they change the tax code or ask them to not change my tax code and just send me a bill for the tax due?

No.  You can pay it earlier than necessary by having a tax code adjustment during 2023:24 but that's your only option.  Otherwise you simply need to wait for your 2023:24 P800 calculation to be issued and then make payment between then and your 2025:26 tax code being calculated.

Maybe it’s just me and how I am reading it, but it sounds like a contradiction in your response here.

First you state that no, I cannot contact HMRC, then after you state that once the P800 is calculated I could pay it before they change the tax code for 2025/2026?

So just to clarify am I right in saying the following…

Bank will advice HMRC in summer 2024 about interest paid at end of 2023

HMRC will do their calcs between summer and Nov 2024 to determine I owe a bit more in tax due to interest.

If I want, I can simply login to my Personal Tax Account online, see any tax due and pay it there and then.

If I pay as above, my 2025/2026 tax code will not change?

Is that about right?

Pretty much.  

What I meant was there is no option to pay an amount that doesn't exist (you can with Self Assessment but that is a different kettle of fish).

So you could have your 2023:24 tax code adjusted and pay it via your wages but other than that you simply wait for the P800 (or a PA302 Simple Assessment calcualtion) and then pay it before your 2025:26 tax code is calculated.

But all that that does is resolve the tax owed for 2023:24.  It doesn't stop your 2024:25 and 2025:26 codes from being revised to reflect the interest you received in 2023:24.  That amount will be used as an estimate when reviewing those codes.

For 2024:25 it would usually be done at a similar time to the P800/PA302 being issued.

And for 2025:26 it would be sometime in Jan to March 2025.

isasmurf

According to tax aid, any underpayment of £50 or lower should be written off

https://taxaid.org.uk/guides/taxpayers/tax-debt/paye

 HMRC say you have not paid enough tax

If HMRC’s calculation shows that you have underpaid tax of:

• Less than £50 for that year, then the tax should be written off. If you receive a letter asking for payment, call HMRC on 0300 200 3300 (or the number shown on the letter) and ask for the debt to be cancelled