Interest on savings - can I just pay the tax upfront?

Hoenir

RG2015 said:

mebu60 said:

Dazed_and_C0nfused said:

mebu60 said:

RG2015 said:

Dazed_and_C0nfused said:

RG2015 said:

Hengabecka said:

For the first time in my life I am looking at making over £1000 in interest on my savings in 2024-2025 (from 1-year fixed rate accounts I have recently opened). I am not looking for ways to avoid paying tax, but I absolutely dread having it taken from my salary via my tax code. Many reasons for this, not least being reluctant to revisit the trauma of continually wrestling with HMRC over the decade I was self-employed and the insane mistakes they made which ultimately cost me a couple of thousand. Also not keen on having my employer involved in tax issues that have nothing to do with my paid work. 
Can I submit a self-assessment pro-actively and pay the tax upfront? It won't be a large amount and I would so much prefer to get it sorted in one payment than have my regular salary nibbled at. 

The process is as follows using the tax year 2024-2025 as an example as this is the year you are looking at.

1. After the tax year end on 5 Apr 2025 the banks and building societies will report the interest received to HMRC. They need to do this by 30 June 2025.
2. If you are due to pay tax on this, in October 2025 or thereabouts, HMRC will send you a P800 detailing your unpaid tax.
3. The details will be also available for you to view on your personal tax account online.
4. In most cases HMRC will advise you that the unpaid tax will be collected in 2026-2027 by an adjustment to your tax code.
5. However you will offered the chance to pay the tax immediately online, ie in October 2025
6. Finally HMRC will estimate that you will have the same amount of unpaid tax in the year 2025-2026 and 2026-2027.
7. They may then further adjust your tax code for 2026-2027 to factor in the estimated unpaid tax for 2025-2026 and 2026-2027.

I have to say that my point 7 above looks a bit odd, and would appreciate confirmation from others if this is correct.

Edit: I also think that even if the unpaid tax for 2024-2025 is paid immediately (in October 2025) that HMRC will still adjust the 2026-2027 tax code to collect the estimated unpaid tax for 2025-2026 and 2026-2027. Confirmation on this also would be much appreciated 

It can vary from person to person and although 5 isn't wrong that isn't really necessary.

The key thing is to pay the tax by the end of December (or thereabouts), it doesn't have to be paid as soon as the P800 is received.   You could pay it in March however by that point HMRC will have calculated the first code to be used for the upcoming tax year so if you are trying to avoid that code being adjusted for tax owed from a prior year then paying it by December, ahead of the first code being calculated would be sensible.

Don't agree with 6 (Finally HMRC will estimate that you will have the same amount of unpaid tax in the year 2025-2026 and 2026-2027).  It's the amount of interest they will assume is the same, not the tax due.

I think 7 would be fairly unusual.  A more common scenario would be that the 2025-26 tax code is amended and the (provisional) extra tax due for 2025-26, whatever that happens to be, is collected throughout the rest of 2025-26.

The tax code for 2026-27 will try and collect the (provisional) tax due on interest for 2026-27, but not normally the (provisional) amount due for 2025-26.

Thanks for your view on point 7. I thought it felt wrong as I was writing it.

As regards point 6, I do agree with you that my wording was imprecise and hence incorrect.

However the OP should be aware that HMRC will assume the same interest for year 2 and year 3. And as a result they will initially estimate that additional tax will be payable for these years.

Therefore there appears to be is no way for the OP to avoid a tax code adjustment in future years.

Unless they pursue the previously suggested SA route and are able to make payments on account in the subsequent years? 

That wouldn't necessarily prevent the current tax code from being updated to try and collect additional tax for the current tax year.

Pay that through SA the following January. Plus first payment on account.

This is what I do and it works fine, am able to maintain a tax code at the PA level. Just need to make sure I put the 'x's in the correct two boxes on the SA return each year to say I don't want tax owing to be collected via tax code. 

I believe that it is difficult to sign up for SA if you don’t meet HMRC’s criteria.

What is missing is a simple method of paying tax on interest received. I don’t see SA as that simple method.

Open a personal tax account online. You can notify the HMRC very easily of income sources and change them as you wish. I simply record the interest received on a spreadsheet every month and in late March every year enter a definitive figure. As interest rates have risen quickly I've simply upped my own estimated figure for the 23/24 tax year. Avoids any unexpected surprises. 

mebu60

RG2015 said:

Dazed_and_C0nfused said:

RG2015 said:

mebu60 said:

Dazed_and_C0nfused said:

mebu60 said:

RG2015 said:

Dazed_and_C0nfused said:

RG2015 said:

Hengabecka said:

For the first time in my life I am looking at making over £1000 in interest on my savings in 2024-2025 (from 1-year fixed rate accounts I have recently opened). I am not looking for ways to avoid paying tax, but I absolutely dread having it taken from my salary via my tax code. Many reasons for this, not least being reluctant to revisit the trauma of continually wrestling with HMRC over the decade I was self-employed and the insane mistakes they made which ultimately cost me a couple of thousand. Also not keen on having my employer involved in tax issues that have nothing to do with my paid work. 
Can I submit a self-assessment pro-actively and pay the tax upfront? It won't be a large amount and I would so much prefer to get it sorted in one payment than have my regular salary nibbled at. 

The process is as follows using the tax year 2024-2025 as an example as this is the year you are looking at.

1. After the tax year end on 5 Apr 2025 the banks and building societies will report the interest received to HMRC. They need to do this by 30 June 2025.
2. If you are due to pay tax on this, in October 2025 or thereabouts, HMRC will send you a P800 detailing your unpaid tax.
3. The details will be also available for you to view on your personal tax account online.
4. In most cases HMRC will advise you that the unpaid tax will be collected in 2026-2027 by an adjustment to your tax code.
5. However you will offered the chance to pay the tax immediately online, ie in October 2025
6. Finally HMRC will estimate that you will have the same amount of unpaid tax in the year 2025-2026 and 2026-2027.
7. They may then further adjust your tax code for 2026-2027 to factor in the estimated unpaid tax for 2025-2026 and 2026-2027.

I have to say that my point 7 above looks a bit odd, and would appreciate confirmation from others if this is correct.

Edit: I also think that even if the unpaid tax for 2024-2025 is paid immediately (in October 2025) that HMRC will still adjust the 2026-2027 tax code to collect the estimated unpaid tax for 2025-2026 and 2026-2027. Confirmation on this also would be much appreciated 

It can vary from person to person and although 5 isn't wrong that isn't really necessary.

The key thing is to pay the tax by the end of December (or thereabouts), it doesn't have to be paid as soon as the P800 is received.   You could pay it in March however by that point HMRC will have calculated the first code to be used for the upcoming tax year so if you are trying to avoid that code being adjusted for tax owed from a prior year then paying it by December, ahead of the first code being calculated would be sensible.

Don't agree with 6 (Finally HMRC will estimate that you will have the same amount of unpaid tax in the year 2025-2026 and 2026-2027).  It's the amount of interest they will assume is the same, not the tax due.

I think 7 would be fairly unusual.  A more common scenario would be that the 2025-26 tax code is amended and the (provisional) extra tax due for 2025-26, whatever that happens to be, is collected throughout the rest of 2025-26.

The tax code for 2026-27 will try and collect the (provisional) tax due on interest for 2026-27, but not normally the (provisional) amount due for 2025-26.

Thanks for your view on point 7. I thought it felt wrong as I was writing it.

As regards point 6, I do agree with you that my wording was imprecise and hence incorrect.

However the OP should be aware that HMRC will assume the same interest for year 2 and year 3. And as a result they will initially estimate that additional tax will be payable for these years.

Therefore there appears to be is no way for the OP to avoid a tax code adjustment in future years.

Unless they pursue the previously suggested SA route and are able to make payments on account in the subsequent years? 

That wouldn't necessarily prevent the current tax code from being updated to try and collect additional tax for the current tax year.

Pay that through SA the following January. Plus first payment on account.

This is what I do and it works fine, am able to maintain a tax code at the PA level. Just need to make sure I put the 'x's in the correct two boxes on the SA return each year to say I don't want tax owing to be collected via tax code. 

I believe that it is difficult to sign up for SA if you don’t meet HMRC’s criteria.

What is missing is a simple method of paying tax on interest received. I don’t see SA as that simple method.

Just pay the tax once HMRC have issued the P800 or PA302 calculation.

There's usually plenty of time between the calculation being issued and the underpayment being included in your tax code.

But that doesn't stop HMRC amending your tax code with an interest estimate for the following year.

This is what the OP is trying to avoid and there doesn't appear to be a way to do this.

Apart from the already suggested SA route and ensuring the correct two boxes are marked on the submission. I do this for myself and my ex-wife and it achieves exactly what the OP seems to desire. Assuming they can get on to SA. 

RG2015

Hoenir said:

RG2015 said:

mebu60 said:

Dazed_and_C0nfused said:

mebu60 said:

RG2015 said:

Dazed_and_C0nfused said:

RG2015 said:

Hengabecka said:

For the first time in my life I am looking at making over £1000 in interest on my savings in 2024-2025 (from 1-year fixed rate accounts I have recently opened). I am not looking for ways to avoid paying tax, but I absolutely dread having it taken from my salary via my tax code. Many reasons for this, not least being reluctant to revisit the trauma of continually wrestling with HMRC over the decade I was self-employed and the insane mistakes they made which ultimately cost me a couple of thousand. Also not keen on having my employer involved in tax issues that have nothing to do with my paid work. 
Can I submit a self-assessment pro-actively and pay the tax upfront? It won't be a large amount and I would so much prefer to get it sorted in one payment than have my regular salary nibbled at. 

The process is as follows using the tax year 2024-2025 as an example as this is the year you are looking at.

1. After the tax year end on 5 Apr 2025 the banks and building societies will report the interest received to HMRC. They need to do this by 30 June 2025.
2. If you are due to pay tax on this, in October 2025 or thereabouts, HMRC will send you a P800 detailing your unpaid tax.
3. The details will be also available for you to view on your personal tax account online.
4. In most cases HMRC will advise you that the unpaid tax will be collected in 2026-2027 by an adjustment to your tax code.
5. However you will offered the chance to pay the tax immediately online, ie in October 2025
6. Finally HMRC will estimate that you will have the same amount of unpaid tax in the year 2025-2026 and 2026-2027.
7. They may then further adjust your tax code for 2026-2027 to factor in the estimated unpaid tax for 2025-2026 and 2026-2027.

I have to say that my point 7 above looks a bit odd, and would appreciate confirmation from others if this is correct.

Edit: I also think that even if the unpaid tax for 2024-2025 is paid immediately (in October 2025) that HMRC will still adjust the 2026-2027 tax code to collect the estimated unpaid tax for 2025-2026 and 2026-2027. Confirmation on this also would be much appreciated 

It can vary from person to person and although 5 isn't wrong that isn't really necessary.

The key thing is to pay the tax by the end of December (or thereabouts), it doesn't have to be paid as soon as the P800 is received.   You could pay it in March however by that point HMRC will have calculated the first code to be used for the upcoming tax year so if you are trying to avoid that code being adjusted for tax owed from a prior year then paying it by December, ahead of the first code being calculated would be sensible.

Don't agree with 6 (Finally HMRC will estimate that you will have the same amount of unpaid tax in the year 2025-2026 and 2026-2027).  It's the amount of interest they will assume is the same, not the tax due.

I think 7 would be fairly unusual.  A more common scenario would be that the 2025-26 tax code is amended and the (provisional) extra tax due for 2025-26, whatever that happens to be, is collected throughout the rest of 2025-26.

The tax code for 2026-27 will try and collect the (provisional) tax due on interest for 2026-27, but not normally the (provisional) amount due for 2025-26.

Thanks for your view on point 7. I thought it felt wrong as I was writing it.

As regards point 6, I do agree with you that my wording was imprecise and hence incorrect.

However the OP should be aware that HMRC will assume the same interest for year 2 and year 3. And as a result they will initially estimate that additional tax will be payable for these years.

Therefore there appears to be is no way for the OP to avoid a tax code adjustment in future years.

Unless they pursue the previously suggested SA route and are able to make payments on account in the subsequent years? 

That wouldn't necessarily prevent the current tax code from being updated to try and collect additional tax for the current tax year.

Pay that through SA the following January. Plus first payment on account.

This is what I do and it works fine, am able to maintain a tax code at the PA level. Just need to make sure I put the 'x's in the correct two boxes on the SA return each year to say I don't want tax owing to be collected via tax code. 

I believe that it is difficult to sign up for SA if you don’t meet HMRC’s criteria.

What is missing is a simple method of paying tax on interest received. I don’t see SA as that simple method.

Open a personal tax account online. You can notify the HMRC very easily of income sources and change them as you wish. I simply record the interest received on a spreadsheet every month and in late March every year enter a definitive figure. As interest rates have risen quickly I've simply upped my own estimated figure for the 23/24 tax year. Avoids any unexpected surprises. 

I assume this is in the "Add missing investment income" section.

Do HMRC use your figures every year, and how many years have you done this for?  

garden25

Hello hmrc have sent me letter saying my tax code for 25/26 has been adjusted because of estimated tax on savings intertest for the current year - i thought you always paid this in arrears?  ie end of next year???  Why are they taking it now in monthly installment thru paye?   incidentailly 24/25 has not even been calc yet so how can they est current tax year?      I also prefer to pay it one lump sum not via paye which i have done in the past.

wmb194

garden25 said:

Hello hmrc have sent me letter saying my tax code for 25/26 has been adjusted because of estimated tax on savings intertest for the current year - i thought you always paid this in arrears?  ie end of next year???  Why are they taking it now in monthly installment thru paye?   incidentailly 24/25 has not even been calc yet so how can they est current tax year?      I also prefer to pay it one lump sum not via paye which i have done in the past.

No, it can be taken via PAYE. HMRC can use estimated numbers based on the interest you earned in prior years. If you think it’s wrong you can change the estimated amount via your online tax amount or by calling HMRC.

Dazed_and_C0nfused

garden25 said:

Hello hmrc have sent me letter saying my tax code for 25/26 has been adjusted because of estimated tax on savings intertest for the current year - i thought you always paid this in arrears?  ie end of next year???  Why are they taking it now in monthly installment thru paye?   incidentailly 24/25 has not even been calc yet so how can they est current tax year?      I also prefer to pay it one lump sum not via paye which i have done in the past.

Nothing unusual in that nowadays.

There might be a balancing up to do once the tax year ends (refund to you or extra to pay) but HMRC generally try to collect as much as possible during the year.

If you know your interest will be less this year you can provide them with your own figures.  But they usually want details for each individual bank account so if you have lots of might take a while to sort out.  If you only have a few not too bad.

And there might be a different reason why last year hasn't been finalised yet, that doesn't stop an update for this year happening.

RG2015

garden25 said:

Hello hmrc have sent me letter saying my tax code for 25/26 has been adjusted because of estimated tax on savings intertest for the current year - i thought you always paid this in arrears?  ie end of next year???  Why are they taking it now in monthly installment thru paye?   incidentailly 24/25 has not even been calc yet so how can they est current tax year?      I also prefer to pay it one lump sum not via paye which i have done in the past.

This happened to me two weeks ago. Then one week ago I got my 24/25 tax calculation with the same untaxed interest figure.

It appears that HMRC adjusted my 25/26 tax code using the actual untaxed interest figure for 24/25. They then must have finalised my P800 for 24/25 and issued this one week later.

dcs34

garden25 said:

Hello hmrc have sent me letter saying my tax code for 25/26 has been adjusted because of estimated tax on savings intertest for the current year - i thought you always paid this in arrears?  ie end of next year???  Why are they taking it now in monthly installment thru paye?   incidentailly 24/25 has not even been calc yet so how can they est current tax year?      I also prefer to pay it one lump sum not via paye which i have done in the past.

This will happen to most people. Usually it is a sign their calculation of 2024/25 is nearly done because they've then copied the same interest amount reported to them for 2024/25 as your 'estimated' interest for 2025/26. So you should expect to have that within a few days.

The point about paying in arrears is that if you do owe money for 2024/25, this will either be payable as a lump sum until April 2026, and thereafter will be paid via adjusting your tax code for 2026/27. They won't automatically adjust your current tax code in the current tax year. However it might impact their estimated interest for the current tax year, which can cause them to update the tax code.

In summary, tax codes are only adjusted (as a general rule) for savings interest to either:

1. Pay actual tax owed from two tax years prior (based on a calculation carried out in the intervening year), or
2. Pay estimated tax owed in the current tax year (such estimates based on reported actual amounts from previous tax years).