PSA How pay interest?

Could someone help with this question please. I have researched this but have been unable to find a comprehensive answer.
If one gains interest on savings accounts over their personal allowance, how is the interest paid and how is it calculated. Assuming basic tax payer with £1,000 allowance and £4,000 of interest is gained in total over 2 or 3 savings accounts. Do the savings providers deduct interest and how do they know how much is due if spread across different providers? HMRC says it estimates the interest and applies a new PAYE code. What does this mean in terms of paying the interest and if it is estimated does an end of year calculation have to be done to ensure the correct amount is paid or possibly claim rebate? 
There is plenty of explanation online about what the PSA is but I really can’t find further explanation as per my question above.
Thank you.

Comments

  • dougle12
    dougle12 Posts: 6 Forumite
    First Post First Anniversary Combo Breaker
    Could someone help with this question please. I have researched this but have been unable to find a comprehensive answer.
    If one gains interest on savings accounts over their personal allowance, how is the interest paid and how is it calculated. Assuming basic tax payer with £1,000 allowance and £4,000 of interest is gained in total over 2 or 3 savings accounts. Do the savings providers deduct interest and how do they know how much is due if spread across different providers? HMRC says it estimates the interest and applies a new PAYE code. What does this mean in terms of paying the interest and if it is estimated does an end of year calculation have to be done to ensure the correct amount is paid or possibly claim rebate? 
    There is plenty of explanation online about what the PSA is but I really can’t find further explanation as per my question above.
    Thank you.
  • Ayr_Rage
    Ayr_Rage Posts: 1,014 Forumite
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    Each of your banks etc advise HMRC of the amount of gross interest paid to you in a tax year, only HMRC know the whole story !

    The banks DO NOT deduct any tax owed.

    HMRC use that figure to adjust your tax code to recover any tax due.

    Otherwise you will receive a bill to pay.

    If you think you have paid too much you'll need to contact HMRC with your interest figure and see if they match HMRC records.






  • eskbanker
    eskbanker Posts: 30,883 Forumite
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    dougle12 said:
    HMRC says it estimates the interest and applies a new PAYE code. What does this mean in terms of paying the interest and if it is estimated does an end of year calculation have to be done to ensure the correct amount is paid or possibly claim rebate?
    HMRC is informed of the previous year's actual interest payments, and adjusts the following year's PAYE code to collect any tax due, but will also use the actual figures as a basis for estimating liabilities in the current year.

    In other words, in late 2023, HMRC will know how much tax arose from savings interest in 2022/23, and if any tax is due, will adjust your 2024/25 PAYE code to collect that, while also tweaking the 2023/24 code to collect the estimated liability in the current year.

    In theory, over time, this ought to correct itself, but only if balances and interest rates stay relatively stable....
  • dougle12
    dougle12 Posts: 6 Forumite
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    Thank you for replying.

    So if I owe say £500 tax at the end of the year my payslip gets 500/12 deducted as tax each month over the next year with the new PAYE code.

    Is it possible to pay a bill instead or is there no choice in the matter?
  • eskbanker
    eskbanker Posts: 30,883 Forumite
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    dougle12 said:
    Is it possible to pay a bill instead or is there no choice in the matter?
    Yes, if you don't like the idea of an interest-free loan from HMRC, you can settle the bill with a one-off payment!
  • friolento
    friolento Posts: 1,119 Forumite
    First Post Name Dropper Photogenic
    edited 11 March at 4:00PM
    All interest gets paid without tax deduction. The providers report the amount of interest they paid you to the HMRC, sometime after the end of the tax year. Yet some time later, HMRC will adjust your tax code or send you a tax bill.

    HMRC will also assume that your income from interest will be the same for the following tax year. They will adjust this as required once they have received the actuals for the year from the provider. If you know the amount you should pay tax on, you can adjust the expected interest online in your Personal Tax Account. In the end, though, the reports from the providers will count.

    If you want to know what the providers report to the HMRC, you have to request this information from the HMRC. It is a mystery why they are not making this information freely available in our Personal Tax Accounts.
  • friolento
    friolento Posts: 1,119 Forumite
    First Post Name Dropper Photogenic
    edited 11 March at 4:00PM
    Apologies, only just saw there is a duplicate thread with the same Q where people have already responded.
  • ColdIron
    ColdIron Posts: 9,001 Forumite
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    edited 11 March at 4:00PM
    Not the OP's fault. The forums are unusable today
  • dougle12
    dougle12 Posts: 6 Forumite
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    edited 11 March at 4:00PM
    Thank you for replying. This is very helpful. 

    Yes, I’ve accidentally started two posts in error due to what seems like an issue with the site today.
  • dougle12
    dougle12 Posts: 6 Forumite
    First Post First Anniversary Combo Breaker
    That’s a good point, thank you!
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