How does HMRC know our savings amounts?

RG2015

Brie said:

How can they report it if they don't have your NI?  I've never been asked for mine for opening an account.

Name, address and date of birth should suffice. Just like the credit reporting agencies.

Aminatidi

eskbanker said:

Aminatidi said:

And how do they collect tax on savings interest?

So say I open a savings account with X and deposit enough to make £1100 interest over a year and I'm paid interest monthly.

That's over my £1000 PSA so as a regular PAYE employee on tax code 1257L.

What happens next?

If you exceed £1K in 2023/24, for example, they'll send you an assessment during 2024/25, and collect the owed tax via PAYE coding adjustment in 2025/26 (unless you elect to pay it sooner).

Thank you and is it granular enough that if I owe say exactly £10 in tax on the annual interest they'll somehow take that via PAYE and it will be exactly £10?

RG2015

Kim_13 said:

The providers will submit a report saying that they have paid X in interest to you. I can’t think of a bank or building society that doesn’t have my NI number, the PSA likely being why they now ask for it rather than only asking for it if you are applying to open an ISA. HMRC will compare that amount against any tax free allowance or PSA available to the individual with that NI number (whether £1,000, £500 or nil) to work out how much tax if any they need to recover.

If you are close to the limit or will pay tax, it’s worth checking the figures the bank give to ensure that you do not overpay due to an error in the information HMRC hold.

I asked this question (whether HMRC have overstated interest on your P800) on the tax board and nobody has responded as yet.

My conclusion would be that HMRC may understate, if a bank doesn't report interest, but never overstate it.

masonic

Aminatidi said:

eskbanker said:

Aminatidi said:

And how do they collect tax on savings interest?

So say I open a savings account with X and deposit enough to make £1100 interest over a year and I'm paid interest monthly.

That's over my £1000 PSA so as a regular PAYE employee on tax code 1257L.

What happens next?

If you exceed £1K in 2023/24, for example, they'll send you an assessment during 2024/25, and collect the owed tax via PAYE coding adjustment in 2025/26 (unless you elect to pay it sooner).

Thank you and is it granular enough that if I owe say exactly £10 in tax on the annual interest they'll somehow take that via PAYE and it will be exactly £10?

No, that's not how it works in practice. HMRC assumes that the income will continue, so they'll also collect what they estimate to be owing up to the year of the adjustment. Then they'll adjust further as needed in subsequent tax years if you overpay.

Aminatidi

Thanks and if that happens does it get paid back somehow or are future PAYE deductions then adjusted so you pay less tax until you're even?

Basically however it happens should it be automatic and "hands off" rather than me having to pay manually or claim a refund?

eskbanker

Aminatidi said:

Thanks and if that happens does it get paid back somehow or are future PAYE deductions then adjusted so you pay less tax until you're even?

Basically however it happens should it be automatic and "hands off" rather than me having to pay manually or claim a refund?

In theory, yes!

Dazed_and_C0nfused

Aminatidi said:

eskbanker said:

Aminatidi said:

And how do they collect tax on savings interest?

So say I open a savings account with X and deposit enough to make £1100 interest over a year and I'm paid interest monthly.

That's over my £1000 PSA so as a regular PAYE employee on tax code 1257L.

What happens next?

If you exceed £1K in 2023/24, for example, they'll send you an assessment during 2024/25, and collect the owed tax via PAYE coding adjustment in 2025/26 (unless you elect to pay it sooner).

Thank you and is it granular enough that if I owe say exactly £10 in tax on the annual interest they'll somehow take that via PAYE and it will be exactly £10?

HMRC don't send bills for individual sources of income, they review your whole liability for the tax year in question.

So someone with exactly £1,100 of interest where the first £1,000 is taxed at 0% is quite likely to owe £21.80.

£20.00 from the interest and £1.80 because of how the PAYE system works (most people just have a Personal Allowance of £12,570 but the PAYE system allows £12,579 tax code allowances when the emergency tax code (1257L) is used so HMRC will include the extra £1.80 in the overall amount owed.

However they may decide not to ask for that £21.80 and, in the example given, just update the 2024-25 tax code to collect additional tax for 2024-25 and not bother with 2023-24.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye93075

Brie

Do banks ask for DoB when opening accounts?  Again - like the NINo - I don't think I've ever been asked.  Some accounts I've had for decades so well before current regs, others have been added to existing accounts more recently so no ID required.  Possible that some banks will have an old address for someone.

The whole thing sounds very complex and makes me wonder if the foreign system of requiring everyone to submit a tax return would actually be more practical.  

WBCPB

Apparently it is all done through "Connect"
https://www.ft.com/content/0640f6ac-5ce9-11e7-9bc8-8055f264aa8b

eskbanker

Brie said:

Do banks ask for DoB when opening accounts?  Again - like the NINo - I don't think I've ever been asked.  Some accounts I've had for decades so well before current regs, others have been added to existing accounts more recently so no ID required.  Possible that some banks will have an old address for someone.

Even if they haven't always asked for DoB, that's only going to be needed for data matching if there are two taxpayers of the same name living at the same address, which is going to be something of an edge case - no data matching algorithms are ever going to be 100% bulletproof, and likewise there will be keying errors and so on to contend with too, but if the matching is 99+% accurate then the amount of exception handling isn't going to be particularly onerous when compared with the alternatives....

Brie said:

The whole thing sounds very complex and makes me wonder if the foreign system of requiring everyone to submit a tax return would actually be more practical.  

Not sure how mandatory tax returns would address data matching issues, and they'd obviously cause a massive incremental workload for HMRC, given that less than 40% of taxpayers are currently required to submit them?