How does HMRC know our savings amounts?

RG2015

Aminatidi said:

I just want a simpler tax system.

I don't want to have to think or care too much about savings v investments and what exact combination of stuff or transactions outside of wrappers might mean I have to complete a tax return that I don't even know I need to complete.

No issue with paying tax I'd just sooner it was taken in a similar manner to PAYE rather than some nagging doubt I'll miss/overlook something through ignorance of an overly complicated system.

I believe many on here overcomplicate it, myself included.

HMRC will get it right for the overwhelming majority on PAYE.  Having savings interest and the state pension may well affect the final figure but would not usually require any input from the taxpayer.

badmemory

Better to file self assessment which is fairly easy if you keep records than to get stuck with the simple assessment which they prefer & HMRC do themselves.  Then you have to check their figures.  Unfortunately DWP seem incapable of giving HMRC the correct state pension figure, an overestimate normally, which does not help.

For those mathematically minded.  Simple assessment costs more in tax normally than self assessment because when you file self assessment they knock the pennies off each amount then add them up.  In simple assessment they add them all up first.  Yes only 20/40p but irritating none the less but if there are 2 million pensioners on simple assessment that is an extra income of at least £400k.  You can see why they like simple assessment.

RG2015

badmemory said:

Better to file self assessment which is fairly easy if you keep records than to get stuck with the simple assessment which they prefer & HMRC do themselves.  Then you have to check their figures.  Unfortunately DWP seem incapable of giving HMRC the correct state pension figure, an overestimate normally, which does not help.

For those mathematically minded.  Simple assessment costs more in tax normally than self assessment because when you file self assessment they knock the pennies off each amount then add them up.  In simple assessment they add them all up first.  Yes only 20/40p but irritating none the less but if there are 2 million pensioners on simple assessment that is an extra income of at least £400k.  You can see why they like simple assessment.

I have always found that my tax free amount via my tax code is rounded up in my favour on simple assessment.

eric4395

How exactly does HMRC know if someone is earning over £1000 savings interest in a year?

I mean the Personal Savings Allowance

So if you have savings at say 5% interest rate how much savings could you have before you go above the £1000 personal savings allowance. ?. Personally I have my gov  pension which is about £12,000 per year and quite a substantial amount in ISAs but I'm never sure as to how much I could actually have approx in a fixed rate account and keep under the £1000 personal savings allowance.

Dazed_and_C0nfused

eric4395 said:

How exactly does HMRC know if someone is earning over £1000 savings interest in a year?

I mean the Personal Savings Allowance

So if you have savings at say 5% interest rate how much savings could you have before you go above the £1000 personal savings allowance. ?. Personally I have my gov  pension which is about £12,000 per year and quite a substantial amount in ISAs but I'm never sure as to how much I could actually have approx in a fixed rate account and keep under the £1000 personal savings allowance.

The savings nil rate band (aka Personal Savings Allowance) can only be utilised once you have used all of your Personal Allowance and any available savings starter rate band (up to £5,000 interest taxed at 0%).

If your only non savings non dividend income (pension, earnings, rental income etc) is £12,000 and you haven't applied for Marriage Allowance then you have £570 spare Personal Allowance and the £5,000 savings starter rate band to use before you can use the savings nil rate band.

So if the interest rates are favourable having more taxable interest might be the best option.

eric4395

Dazed_and_C0nfused said:

eric4395 said:

How exactly does HMRC know if someone is earning over £1000 savings interest in a year?

I mean the Personal Savings Allowance

So if you have savings at say 5% interest rate how much savings could you have before you go above the £1000 personal savings allowance. ?. Personally I have my gov  pension which is about £12,000 per year and quite a substantial amount in ISAs but I'm never sure as to how much I could actually have approx in a fixed rate account and keep under the £1000 personal savings allowance.

The savings nil rate band (aka Personal Savings Allowance) can only be utilised once you have used all of your Personal Allowance and any available savings starter rate band (up to £5,000 interest taxed at 0%).

If your only non savings non dividend income (pension, earnings, rental income etc) is £12,000 and you haven't applied for Marriage Allowance then you have £570 spare Personal Allowance and the £5,000 savings starter rate band to use before you can use the savings nil rate band.

So if the interest rates are favourable having more taxable interest might be the best option.

Thanks but is it possible to give approx figure that I could have in a fixed rate account at say 5  % instead of an ISA  on the basis my total income is  only approx £12000 and my wife's is about £11,000 per year. Is it £5000,10,0000, 20,000 or even more at say a  5% fixed  interest rate for a year  without being taxed?

Dazed_and_C0nfused

eric4395 said:

Dazed_and_C0nfused said:

eric4395 said:

How exactly does HMRC know if someone is earning over £1000 savings interest in a year?

I mean the Personal Savings Allowance

So if you have savings at say 5% interest rate how much savings could you have before you go above the £1000 personal savings allowance. ?. Personally I have my gov  pension which is about £12,000 per year and quite a substantial amount in ISAs but I'm never sure as to how much I could actually have approx in a fixed rate account and keep under the £1000 personal savings allowance.

The savings nil rate band (aka Personal Savings Allowance) can only be utilised once you have used all of your Personal Allowance and any available savings starter rate band (up to £5,000 interest taxed at 0%).

If your only non savings non dividend income (pension, earnings, rental income etc) is £12,000 and you haven't applied for Marriage Allowance then you have £570 spare Personal Allowance and the £5,000 savings starter rate band to use before you can use the savings nil rate band.

So if the interest rates are favourable having more taxable interest might be the best option.

Thanks but is it possible to give approx figure that I could have in a fixed rate account at say 5  % instead of an ISA  on the basis my total income is  only approx £12000 and my wife's is about £11,000 per year. Is it £5000,10,0000, 20,000 or even more at say a  5% fixed  interest rate for a year  without being taxed?

If you had £130k earning 5% that would be £6,500.

£570 would be covered by your spare Personal Allowance and the rest would be taxed at 0%.

If your wife had £150k earning 5% that would be £7,500.

£1,570 would be covered by her spare Personal Allowance and the rest would be taxed at 0%.

Cloth_of_Gold

If you are a retired single person, below state retirement age, but have an occupational pension which exceeds the £12,570 personal allowance and have savings income over £1000 are they likely to use simple assessment? How would they collect the tax due - via a change in your tax code or by you making a one-off payment?

Dazed_and_C0nfused

Cloth_of_Gold said:

If you are a retired single person, below state retirement age, but have an occupational pension which exceeds the £12,570 personal allowance and have savings income over £1000 are they likely to use simple assessment? How would they collect the tax due - via a change in your tax code or by you making a one-off payment?

The preference is to collect the tax due via your tax code.

But if that isn't possible then HMRC will issue a Simple Assessment and you would need to pay the tax direct, usually by 31 January after the end of the tax year.

Have you taken account of the savings starter rate band (if available for you to use)?

Bigwheels1111

Cloth_of_Gold said:

If you are a retired single person, below state retirement age, but have an occupational pension which exceeds the £12,570 personal allowance and have savings income over £1000 are they likely to use simple assessment? How would they collect the tax due - via a change in your tax code or by you making a one-off payment?

Is your pension below £17,570 ?. 
If so the difference between income and pension can be starter rate savings.

Say you get a pension of £15,000, the £2,570 left can be starter rate for savings and tax free.
Then you still get £1,000 PSA on top.
Up to £18,570 before tax is due. Well kind of.
£12,570 tax free earnings.
£ 5,000 starter savings rate tax free, interest from savings.
£ 1,000 PSA tax free.
£18,570 tax free if you meet this criteria.

If your pension is 15k, you would pay 20% tax on £2030.00 . £15,000 - £12.570 = £2030.00.
£406.00 tax.

For saving interest it would be £18,570 - £15,000 = £3,570 of interest tax free.
The 5k starter savings rate is reduced by any income over £12,570 and between £17,570.
Does that make sense.

You might not have any tax to pay.