Understanding my tax code - interest on savings and starter rate

Sunshine_and_Roses

I have checked my new tax code for 2023/24 and it is showing as having £245 deductions for interest on savings.  Could anyone please explain to me how this is calculated? 

I work part time and do not pay tax on my earnings (just on the limit at around £12,500 pa).  I thought I would get £5000 starter rate on savings plus the £1000 personal allowance.  Could this be from last year?  My circumstances were very similar then  -  unsure when the starter rate was brought in.

Thanks for any help to which is probably an obvious oversight on my part!!

chrisbur

Have a look at your personal tax account to see what HMRC have as your estimated earnings; may need adjusting.
https://www.gov.uk/personal-tax-account

Sunshine_and_Roses

chrisbur said:

Have a look at your personal tax account to see what HMRC have as your estimated earnings; may need adjusting.
https://www.gov.uk/personal-tax-account

How your tax-free amount is calculated

Personal Allowance

The amount is£12,570

Additions

Flat rate job expenses

£80

Update or removeUpdate or remove Flat rate job expenses

Total additions

£80

Deductions

Untaxed interest on savings and investments

£245

Total deductions

£245

Your total tax-free amount

The amount is£12,405

Tax on savings interest

Your total income from savings this tax year is estimated at £190.

Income Tax Band	Amount	Tax Rate	Tax
Starting rate for savings	£190	0%	£0

I estimate this year that I will get about £5000 in interest from savings, depending on whether I swap into fixed bonds or put more into ISAs etc.  I don't understand how they have the figures of £245 and £190 for this tax year.  Any ideas?

sheramber

How much was your savings interest last year?
HMRC  will not know you might swop your savings . They can only estimate based on previous information. If that information needs updated then you should do so.

Sunshine_and_Roses

sheramber said:

How much was your savings interest last year?
HMRC  will not know you might swop your savings . They can only estimate based on previous information. If that information needs updated then you should do so.

This is going to sound awful but I don't have exact figures.  I have swapped savings accounts so many times in the last year to get the best interest rates and accounts have now been closed.  A guestimate would be around £2000/3000 from different accounts which will increase this year due to interest rate increases.  Unless there is an easy way of finding out?

molerat

What does it show for your earnings.  If you have spare allowance they will often deduct some untaxed interest which should make no difference to the amount of tax deducted as long as your job is showing an accurate figure. That is most important in this scenario.

Sunshine_and_Roses

molerat said:

What does it show for your earnings.  If you have spare allowance they will often deduct some untaxed interest which should make no difference to the amount of tax deducted as long as your job is showing an accurate figure. That is most important in this scenario.

Estimated earnings is showing as £12,595 which is about right, give or take £100 or so.

Dazed_and_C0nfused

clareski said:

molerat said:

What does it show for your earnings.  If you have spare allowance they will often deduct some untaxed interest which should make no difference to the amount of tax deducted as long as your job is showing an accurate figure. That is most important in this scenario.

Estimated earnings is showing as £12,595 which is about right, give or take £100 or so.

Your tax code includes the deduction be used based on HMRC's estimate of what you will earn you have some spare Personal Allowance.  And the interest used that before the savings starter rate (or nil rate) comes into play.

If you update your estimated earnings to at least £12,650 you won't have any spare allowances so the interest deduction will be removed from your code.

That will ensure you only pay tax if your annualised earnings exceed £12,650 in any pay period.

xylophone

Have a look at this

https://forums.moneysavingexpert.com/discussion/comment/79585658/#Comment_79585658