Tax on savings interest, how does it work? Is there any efficiencies I can do?

AnnoyedEnergyUser

Not had this issue before but with the increase in interest rates I could potentially earn more than a £1,000 interest on my savings. Now back in the day banks would automatically take any tax out, but I understand they don't do that these days. If I have read it correctly they inform the inland revenue they then change my tax code and it is taken out of my wages. Knowing how slowly places perform and how often they can get tax codes wrong. I would love to avoid this. Anyone had any experience of this? As tax years are April to April just how quickly do they change codes? I am just on the cusp so for instance if in a tax year I earnt £1,012 then would my code move by the £12 other than ISAs is there any other processes I can do?

boingy

Options:

• Put some extra into your pension.
• Put some in to Premium Bonds.
• Give some to your spouse, assuming they have spare "capacity".
• Give some to me.

Some of these options are more sensible than others.

jaypers

I had to do a self assessment for the first time in ages last tax year. To be honest, I now prefer to do a SA as I know that things like interest tax is 100% correct. I also opt to pay it as a bill rather than in my tax code.

So far as efficiencies, as above really. If you have a spouse, utilise their allowance as much as you can too. Pension, ISA etc also worth looking at. 

wiseonesomeofthetime

jaypers said:

I had to do a self assessment for the first time in ages last tax year. To be honest, I now prefer to do a SA as I know that things like interest tax is 100% correct. I also opt to pay it as a bill rather than in my tax code.

So far as efficiencies, as above really. If you have a spouse, utilise their allowance as much as you can too. Pension, ISA etc also worth looking at. 

This was not an option offered to me previously, and I find it more sensible (for me anyway) than messing with my tax code and thus my monthly income, when my whole monthly budget is based on said income.

I shall be keeping an eye on it this year so that, when I get the letter - usually around October - I can get things sorted and settled and maintain my current ways of budgeting, without adjustments.

I should add though that I do not have to Self-Assess. Not yet anyway.

djbreeze

Morning all,

I've just logged in to the forum to ask exactly the same thing, first time this year will be just over the £1k interest. I have little trust in the inland revenue getting it right & I believe it's nigh on impossible to contact them so any advice on how to pay as a bill rather than have tax code amended would be really appreciated. What's the October letter that's mentioned above?

Thanks, David.

isasmurf

djbreeze said:

Morning all,

I've just logged in to the forum to ask exactly the same thing, first time this year will be just over the £1k interest. I have little trust in the inland revenue getting it right & I believe it's nigh on impossible to contact them so any advice on how to pay as a bill rather than have tax code amended would be really appreciated. What's the October letter that's mentioned above?

Thanks, David.

Over the summer/autumn HMRC will calculate your tax liability for the previous tax year from all their data sources and reconcile it with your tax paid. If you have under or over paid tax they will send you a tax calculation showing a summary of the amount and the calculation. It should detail how an underpayment will be collected or an overpayment repaid. 

Nebulous2

isasmurf said:

djbreeze said:

Morning all,

I've just logged in to the forum to ask exactly the same thing, first time this year will be just over the £1k interest. I have little trust in the inland revenue getting it right & I believe it's nigh on impossible to contact them so any advice on how to pay as a bill rather than have tax code amended would be really appreciated. What's the October letter that's mentioned above?

Thanks, David.

Over the summer/autumn HMRC will calculate your tax liability for the previous tax year from all their data sources and reconcile it with your tax paid. If you have under or over paid tax they will send you a tax calculation showing a summary of the amount and the calculation. It should detail how an underpayment will be collected or an overpayment repaid. 

That was timely - thank you. I logged in from curiosity, was told I had overpaid by £18 according to the letter they had sent me. I haven't received it, so it must be en-route. 

I was then able to ask them to make the refund direct to my bank account. 

Albermarle

jaypers said:

I had to do a self assessment for the first time in ages last tax year. To be honest, I now prefer to do a SA as I know that things like interest tax is 100% correct. I also opt to pay it as a bill rather than in my tax code.

So far as efficiencies, as above really. If you have a spouse, utilise their allowance as much as you can too. Pension, ISA etc also worth looking at. 

Just for others to be aware, you can not just choose to do SA. In fact HMRC are trying to reduce the number of people doing SA.
Check if you need to send a Self Assessment tax return - GOV.UK (www.gov.uk)

poppystar

Albermarle said:

jaypers said:

I had to do a self assessment for the first time in ages last tax year. To be honest, I now prefer to do a SA as I know that things like interest tax is 100% correct. I also opt to pay it as a bill rather than in my tax code.

So far as efficiencies, as above really. If you have a spouse, utilise their allowance as much as you can too. Pension, ISA etc also worth looking at. 

Just for others to be aware, you can not just choose to do SA. In fact HMRC are trying to reduce the number of people doing SA.
Check if you need to send a Self Assessment tax return - GOV.UK (www.gov.uk)

Good luck to them with that, I suspect the number having to do SA will increase rather than decrease this year - unless they stop taxing savings!

Doctor_Who

poppystar said:

Albermarle said:

jaypers said:

I had to do a self assessment for the first time in ages last tax year. To be honest, I now prefer to do a SA as I know that things like interest tax is 100% correct. I also opt to pay it as a bill rather than in my tax code.

So far as efficiencies, as above really. If you have a spouse, utilise their allowance as much as you can too. Pension, ISA etc also worth looking at. 

Just for others to be aware, you can not just choose to do SA. In fact HMRC are trying to reduce the number of people doing SA.
Check if you need to send a Self Assessment tax return - GOV.UK (www.gov.uk)

Good luck to them with that, I suspect the number having to do SA will increase rather than decrease this year - unless they stop taxing savings!

You only need to do SA if your savings interest is over £10,000, otherwise HMRC adjust your tax code when the banks report the interest. 

boingy

Ironically, it took 8 years after I went back into PAYE for them to agree that I no longer needed to SA (I'd been self-employed for 12 years).