HMRC and calculation of tax on savings interest

AmityNeon

The notion that savings interest can be estimated by assumption on an annual basis by HMRC is absolute nonsense to me. Savings interest is based entirely on personal, voluntary behaviour, and can drastically differ year on year.

Regular earnings through PAYE are taxed and adjusted every payment cycle, which are far more frequent than once a year, and by design, do not change one’s tax code even if earnings are variable throughout the year. Regular earnings are also only taxed after they have been earned.

By adjusting one’s tax code to collect savings tax on estimated (assumed) interest for the current year, HMRC are collecting tax before gross interest is even paid, and their figures will most likely be incorrect and require constant future adjustment, so effectively they’re just convoluting the process for an early slice of the pie, instead of allowing accurate taxing in arrears. The same applies to expecting the self-employed to appeal the current year’s estimate.

Band7

In my experience, HMRC accept

1. that you modify the amount of expected savings interest in your Personal Tax Account
   
   
2. the actual amount of interest received as a single sum in your Self Assessment (which I have to complete annually for other reasons anyway)