HMRC and calculation of tax on savings interest

poppystar

Just a few questions on how this works - I thought I’d got my head round it but HMRC have just sent me a curved ball by adjusting my tax code for the rest of this year. I’d started a spreadsheet so I could see at a glance but nothing I’ve put in relates to the amount HMRC have estimated for this year. I looked online expecting more detail but got none other than that they needed me to pay £36 for this year and had adjusted my tax code to get an extra £28 over the remainder of the year. No idea on that difference! I’m not questioning having to pay tax or being picky about such small amounts I just have a desire to understand and follow the calculations.

So, any ideas why they say one figure and use another? 

When calculating interest earned am I right in thinking:

1) they will assign annual interest paid to the year it is paid to me? Eg if I get the annual payment in June it will be that amount that is used for the year in which that June falls rather than HMRC attempt to split it between years.

2a) for monthly interest it is a total of the months payments in each year? 

2b) for monthly interest it is the financial year that is used? Ie where interest is paid monthly on, say 4th of month (and this itself varies according to working days) then it will be the year ending on the April 5th that will be used not the next year (which would mean some years may have 13 payments and others 11)? 

Thanks

Dazed_and_C0nfused

What really matters is what the bank reports to HMRC.

But normally that will be the interest paid in each tax year.

Assuming you haven't interfered with things a recent tax code change for 2022:23 will normally be based on the interest details HMRC have for 2021:22, the last year banks have had to report interest for at the moment.

If you post details of the tax code it should be possible to explain what has happened.

But if it includes an "In year adjustment" that is an attempt to collect some tax owed for the current tax year between now and 5 April 2023.

Band7

Have you checked in your Personal Tax account how much interest HMRC think you will get? If they have the wrong number, it's easy to adjust it to a better amount. 

Though it is also possible that they are still collecting tax due for 2021-22 as the banks don't report until well after the end of the tax year

RG2015

Band7 said:

Have you checked in your Personal Tax account how much interest HMRC think you will get? If they have the wrong number, it's easy to adjust it to a better amount. 

Though it is also possible that they are still collecting tax due for 2021-22 as the banks don't report until well after the end of the tax year

The Personal Tax Account (PTA) is not that easy to navigate but it does have some very useful information.

Once logged in to your PTA online, you should be able to see the interest amount being used. You can navigate from the PTA home page to the interest by clicking through as follows.

• Account Home
• Paye
• Check current tax year
• How is your income tax calculated
• view detailed income tax estimate

This page should have a section showing tax on savings interest

poppystar

Band7 said:

Have you checked in your Personal Tax account how much interest HMRC think you will get? If they have the wrong number, it's easy to adjust it to a better amount. 

Though it is also possible that they are still collecting tax due for 2021-22 as the banks don't report until well after the end of the tax year

Yes I did. I was hoping that might explain where the figure they are using came from. I expect, given interest rate rises during the year, that ultimately I will need to pay more tax for the year. It gave no information as to how they arrived at their estimated interest figure. And as I say it said £36 due and that the tax code adjustment would result in £28 tax being paid. 

The account showed all tax paid for 21/22 so it at least made it clear that this related to this year. 

RG2015

poppystar said:

Band7 said:

Have you checked in your Personal Tax account how much interest HMRC think you will get? If they have the wrong number, it's easy to adjust it to a better amount. 

Though it is also possible that they are still collecting tax due for 2021-22 as the banks don't report until well after the end of the tax year

Yes I did. I was hoping that might explain where the figure they are using came from. I expect, given interest rate rises during the year, that ultimately I will need to pay more tax for the year. It gave no information as to how they arrived at their estimated interest figure. And as I say it said £36 due and that the tax code adjustment would result in £28 tax being paid. 

The account showed all tax paid for 21/22 so it at least made it clear that this related to this year. 

This makes no sense. You cannot be taxed on the current tax year because no one will know how much interest you will earn before the year has ended.

Dazed_and_C0nfused

RG2015 said:

poppystar said:

Band7 said:

Have you checked in your Personal Tax account how much interest HMRC think you will get? If they have the wrong number, it's easy to adjust it to a better amount. 

Though it is also possible that they are still collecting tax due for 2021-22 as the banks don't report until well after the end of the tax year

Yes I did. I was hoping that might explain where the figure they are using came from. I expect, given interest rate rises during the year, that ultimately I will need to pay more tax for the year. It gave no information as to how they arrived at their estimated interest figure. And as I say it said £36 due and that the tax code adjustment would result in £28 tax being paid. 

The account showed all tax paid for 21/22 so it at least made it clear that this related to this year. 

This makes no sense. You cannot be taxed on the current tax year because no one will know how much interest you will earn before the year has ended.

You can pay tax towards the total due for this year though, either because HMRC have estimated the interest that will be received based on the previous tax year or because the person (or their agent/accountant) has provided their own figure of interest they expect to receive for the current tax year.

When the year is eventually reviewed the total tax paid during the year will be compared to the actual tax due and any difference (subject to the small(?) amounts HMRC ignore) will have to be paid or if a refund is due it will be refunded by HMRC.

RG2015

Dazed_and_C0nfused said:

RG2015 said:

poppystar said:

Band7 said:

Have you checked in your Personal Tax account how much interest HMRC think you will get? If they have the wrong number, it's easy to adjust it to a better amount. 

Though it is also possible that they are still collecting tax due for 2021-22 as the banks don't report until well after the end of the tax year

Yes I did. I was hoping that might explain where the figure they are using came from. I expect, given interest rate rises during the year, that ultimately I will need to pay more tax for the year. It gave no information as to how they arrived at their estimated interest figure. And as I say it said £36 due and that the tax code adjustment would result in £28 tax being paid. 

The account showed all tax paid for 21/22 so it at least made it clear that this related to this year. 

This makes no sense. You cannot be taxed on the current tax year because no one will know how much interest you will earn before the year has ended.

You can pay tax towards the total due for this year though, either because HMRC have estimated the interest that will be received based on the previous tax year or because the person (or their agent/accountant) has provided their own figure of interest they expect to receive for the current tax year.

When the year is eventually reviewed the total tax paid during the year will be compared to the actual tax due and any difference (subject to the small(?) amounts HMRC ignore) will have to be paid or if a refund is due it will be refunded by HMRC.

Okay, but it cannot be the OP or their accountant as they would know.

It cannot be based on 2021:2022 because the OP's PTA says the correct amount of tax has been paid for this year.

This leaves 2020:2021 as the year upon which any estimate could be based which seems unlikely.

Whatever has happened there does appear to be something rotten in the State of Denmark HMRC. 

Dazed_and_C0nfused

RG2015 said:

Dazed_and_C0nfused said:

RG2015 said:

poppystar said:

Band7 said:

Have you checked in your Personal Tax account how much interest HMRC think you will get? If they have the wrong number, it's easy to adjust it to a better amount. 

Though it is also possible that they are still collecting tax due for 2021-22 as the banks don't report until well after the end of the tax year

Yes I did. I was hoping that might explain where the figure they are using came from. I expect, given interest rate rises during the year, that ultimately I will need to pay more tax for the year. It gave no information as to how they arrived at their estimated interest figure. And as I say it said £36 due and that the tax code adjustment would result in £28 tax being paid. 

The account showed all tax paid for 21/22 so it at least made it clear that this related to this year. 

This makes no sense. You cannot be taxed on the current tax year because no one will know how much interest you will earn before the year has ended.

You can pay tax towards the total due for this year though, either because HMRC have estimated the interest that will be received based on the previous tax year or because the person (or their agent/accountant) has provided their own figure of interest they expect to receive for the current tax year.

When the year is eventually reviewed the total tax paid during the year will be compared to the actual tax due and any difference (subject to the small(?) amounts HMRC ignore) will have to be paid or if a refund is due it will be refunded by HMRC.

Okay, but it cannot be the OP or their accountant as they would know.

It cannot be based on 2021:2022 because the OP's PTA says the correct amount of tax has been paid for this year.

This leaves 2020:2021 as the year upon which any estimate could be based which seems unlikely.

Whatever has happened there does appear to be something rotten in the State of Denmark HMRC. 

I think you're getting confused.

The 2021:22 tax year could easily be "correct" in the sense that the op owes say £20 and HMRC have decided not to collect that.

But that wouldn't stop them from using the 2021:22 information to update the 2022:23 tax year.

And the revised tax code for 2022:23 is only looking to get 2022:23 as accurate as possible.

RG2015

Dazed_and_C0nfused said:

RG2015 said:

Dazed_and_C0nfused said:

RG2015 said:

poppystar said:

Band7 said:

Have you checked in your Personal Tax account how much interest HMRC think you will get? If they have the wrong number, it's easy to adjust it to a better amount. 

Though it is also possible that they are still collecting tax due for 2021-22 as the banks don't report until well after the end of the tax year

Yes I did. I was hoping that might explain where the figure they are using came from. I expect, given interest rate rises during the year, that ultimately I will need to pay more tax for the year. It gave no information as to how they arrived at their estimated interest figure. And as I say it said £36 due and that the tax code adjustment would result in £28 tax being paid. 

The account showed all tax paid for 21/22 so it at least made it clear that this related to this year. 

This makes no sense. You cannot be taxed on the current tax year because no one will know how much interest you will earn before the year has ended.

You can pay tax towards the total due for this year though, either because HMRC have estimated the interest that will be received based on the previous tax year or because the person (or their agent/accountant) has provided their own figure of interest they expect to receive for the current tax year.

When the year is eventually reviewed the total tax paid during the year will be compared to the actual tax due and any difference (subject to the small(?) amounts HMRC ignore) will have to be paid or if a refund is due it will be refunded by HMRC.

Okay, but it cannot be the OP or their accountant as they would know.

It cannot be based on 2021:2022 because the OP's PTA says the correct amount of tax has been paid for this year.

This leaves 2020:2021 as the year upon which any estimate could be based which seems unlikely.

Whatever has happened there does appear to be something rotten in the State of Denmark HMRC. 

I think you're getting confused.

The 2021:22 tax year could easily be "correct" in the sense that the op owes say £20 and HMRC have decided not to collect that.

But that wouldn't stop them from using the 2021:22 information to update the 2022:23 tax year.

And the revised tax code for 2022:23 is only looking to get 2022:23 as accurate as possible.

Not so much confused as dazed ignorant.

It had never occurred to me that HMRC could deem an amount too small to collect for one year and then make an adjustment to collect a similar amount in the following year. And this before that following year has even ended.

It just seems to be an illogical and unnecessary move for what they have already determined is an amount too small to collect in the previous year.

Hopefully the OP will come back and update us in due course.

poppystar

RG2015 said:

Dazed_and_C0nfused said:

RG2015 said:

poppystar said:

Band7 said:

Have you checked in your Personal Tax account how much interest HMRC think you will get? If they have the wrong number, it's easy to adjust it to a better amount. 

Though it is also possible that they are still collecting tax due for 2021-22 as the banks don't report until well after the end of the tax year

Yes I did. I was hoping that might explain where the figure they are using came from. I expect, given interest rate rises during the year, that ultimately I will need to pay more tax for the year. It gave no information as to how they arrived at their estimated interest figure. And as I say it said £36 due and that the tax code adjustment would result in £28 tax being paid. 

The account showed all tax paid for 21/22 so it at least made it clear that this related to this year. 

This makes no sense. You cannot be taxed on the current tax year because no one will know how much interest you will earn before the year has ended.

You can pay tax towards the total due for this year though, either because HMRC have estimated the interest that will be received based on the previous tax year or because the person (or their agent/accountant) has provided their own figure of interest they expect to receive for the current tax year.

When the year is eventually reviewed the total tax paid during the year will be compared to the actual tax due and any difference (subject to the small(?) amounts HMRC ignore) will have to be paid or if a refund is due it will be refunded by HMRC.

Okay, but it cannot be the OP or their accountant as they would know.

It cannot be based on 2021:2022 because the OP's PTA says the correct amount of tax has been paid for this year.

This leaves 2020:2021 as the year upon which any estimate could be based which seems unlikely.

Whatever has happened there does appear to be something rotten in the State of Denmark HMRC. 

It’s certainly not 20/21 as that also says all tax paid and I definitely earned nowhere near enough interest in that year to need to pay tax. 

It seems they must have made some sort of guesstimate rather than estimate for this year - which is why I logged into my account in the hope it would tell me on what that was based. It gives their figure but no idea of where they got it from? Is it likely one financial institution has already sent in details of some interest paid this year to date?