Untaxed interest - PAYE and self assessment

haiku_

I recently completed a self-assessment tax return for 2022-23. I worked full time during that tax year and this was my first time completing self-assessment.

I contacted HMRC before submitting my return regarding the untaxed interest section as I inherited a large sum of money during 2021 and knew this was going to take me over the £1000 interest threshold. During this conversation, I learnt that some of my untaxed interest figures on file at HMRC were estimates and not actuals, and I was advised to contact each bank to request the actual figures, and include these in my self-assessment tax return which I did.

As far as I am aware, I have no way of knowing how much untaxed interest I paid tax on via my tax code during the 2022-23 tax year, so included the full figure. I then submitted the tax return and paid the bill.

When doing this, I assume I paid tax on the full amount of untaxed interest that I submitted. Does anyone know if this is correct?

Would I have already paid tax on at least some of this untaxed interest through my tax code during that year and if so, would I be due a refund?

I phoned HMRC and spoke to someone who at first said he thought I needed to amend the untaxed interest figure by deducting the amount they had on file for that year, and then said the system works it out automatically when submitting the self assessment and that I would not be due a refund. However, he did not sound very certain. I have asked the question on the HMRC forums but have not had any replies.

Any advice would be much appreciated.

[Deleted User]

A PAYE code is only an attempt to collect the correct amount of tax throughout the year in order to minimise any potential bill. 

Keeping it really simple - let’s say HMRC included an amount of 6000 in your PAYE code for untaxed interest in 2023:24. When completing your tax return you discover that you received £6010. Your calculation should show an amount due of £2.00 (plus any rounding due to the PAYE code itself). This is, of course, £10 @ 20%

[Deleted User]

Tax_Accountant said:

Ayr_Rage said:

@Tax_Accountant what utter nonsense.

With SA any unpaid tax on savings interest can be recovered through a change in tax code for amounts under £3000 if I remember correctly.

Well from my experience because of the nature of income and tax thereon, HMRC will try not to update tax code.
You can try, through your gateway to update your tax code by entering in other income but this is not what HMRC guidance says. 

https://www.gov.uk/tax-codes/why-tax-code-change

Why your tax code might change

HMRC may update your tax code if:

• you start to get income from an additional job or pension

• your weekly State Pension amount changes

• your employer tells HMRC you have started or stopped getting benefits from your job

• you get taxable state benefits

• you claim Marriage Allowance

• you claim expenses that you get tax relief

My tax code includes deductions for interest, rental income and taxable benefit. I prefer it that way. 

Tax_Accountant

[Deleted User] said:

Tax_Accountant said:

Ayr_Rage said:

@Tax_Accountant what utter nonsense.

With SA any unpaid tax on savings interest can be recovered through a change in tax code for amounts under £3000 if I remember correctly.

Well from my experience because of the nature of income and tax thereon, HMRC will try not to update tax code.
You can try, through your gateway to update your tax code by entering in other income but this is not what HMRC guidance says. 

https://www.gov.uk/tax-codes/why-tax-code-change

Why your tax code might change

HMRC may update your tax code if:

• you start to get income from an additional job or pension

• your weekly State Pension amount changes

• your employer tells HMRC you have started or stopped getting benefits from your job

• you get taxable state benefits

• you claim Marriage Allowance

• you claim expenses that you get tax relief

My tax code includes deductions for interest, rental income and taxable benefit. I prefer it that way. 

I would still suggest to email HMRC through their community forum and have guidance from them. In case of any HMRC correction for past years for any reason and because of tax code adjustments, you may end up having unusual tax liability. Its not about choice, its about following correct guidance. 

Dazed_and_C0nfused

Ayr_Rage said:

@Tax_Accountant what utter nonsense.

With SA any unpaid tax on savings interest can be recovered through a change in tax code for amounts under £3000 if I remember correctly.

Correct.  Providing the return was filed by 30 December and the code can support the amount due.  Usually just the Self Assessment Balancing Payment but occasionally part of the POA for the return year.

And outside of Self Assessment updating tax codes to provisionally collect extra tax due on untaxed interest is a very common occurrence.

[Deleted User]

Tax_Accountant said:

[Deleted User] said:

Tax_Accountant said:

Ayr_Rage said:

@Tax_Accountant what utter nonsense.

With SA any unpaid tax on savings interest can be recovered through a change in tax code for amounts under £3000 if I remember correctly.

Well from my experience because of the nature of income and tax thereon, HMRC will try not to update tax code.
You can try, through your gateway to update your tax code by entering in other income but this is not what HMRC guidance says. 

https://www.gov.uk/tax-codes/why-tax-code-change

Why your tax code might change

HMRC may update your tax code if:

• you start to get income from an additional job or pension

• your weekly State Pension amount changes

• your employer tells HMRC you have started or stopped getting benefits from your job

• you get taxable state benefits

• you claim Marriage Allowance

• you claim expenses that you get tax relief

My tax code includes deductions for interest, rental income and taxable benefit. I prefer it that way. 

I would still suggest to email HMRC through their community forum and have guidance from them. In case of any HMRC correction for past years for any reason and because of tax code adjustments, you may end up having unusual tax liability. It’s not about choice, it’s about following correct guidance. 

I am ex HMRC, am employed and have a large private client portfolio. Thanks for the advice though.

[Deleted User]

Dazed_and_C0nfused said:

Ayr_Rage said:

@Tax_Accountant what utter nonsense.

With SA any unpaid tax on savings interest can be recovered through a change in tax code for amounts under £3000 if I remember correctly.

Correct.  Providing the return was filed by 30 December and the code can support the amount due.  Usually just the Self Assessment Balancing Payment but occasionally part of the POA for the return year.

And outside of Self Assessment updating tax codes to provisionally collect extra tax due on untaxed interest is a very common occurrence.

The initial suggestion, not by Ayr Rage, was that 

‘You cannot pay tax on untaxed interest through your tax code’

which, of course, is nonsense. 

Dazed_and_C0nfused

[Deleted User] said:

Tax_Accountant said:

[Deleted User] said:

Tax_Accountant said:

Ayr_Rage said:

@Tax_Accountant what utter nonsense.

With SA any unpaid tax on savings interest can be recovered through a change in tax code for amounts under £3000 if I remember correctly.

Well from my experience because of the nature of income and tax thereon, HMRC will try not to update tax code.
You can try, through your gateway to update your tax code by entering in other income but this is not what HMRC guidance says. 

https://www.gov.uk/tax-codes/why-tax-code-change

Why your tax code might change

HMRC may update your tax code if:

• you start to get income from an additional job or pension

• your weekly State Pension amount changes

• your employer tells HMRC you have started or stopped getting benefits from your job

• you get taxable state benefits

• you claim Marriage Allowance

• you claim expenses that you get tax relief

My tax code includes deductions for interest, rental income and taxable benefit. I prefer it that way. 

I would still suggest to email HMRC through their community forum and have guidance from them. In case of any HMRC correction for past years for any reason and because of tax code adjustments, you may end up having unusual tax liability. It’s not about choice, it’s about following correct guidance. 

I am ex HMRC, am employed and have a large private client portfolio. Thanks for the advice though.

But are you a "Tax Accountant" 😉

Joke.

Much like some of the posts in this thread.

[Deleted User]

Dazed_and_C0nfused said:

[Deleted User] said:

Tax_Accountant said:

[Deleted User] said:

Tax_Accountant said:

Ayr_Rage said:

@Tax_Accountant what utter nonsense.

With SA any unpaid tax on savings interest can be recovered through a change in tax code for amounts under £3000 if I remember correctly.

Well from my experience because of the nature of income and tax thereon, HMRC will try not to update tax code.
You can try, through your gateway to update your tax code by entering in other income but this is not what HMRC guidance says. 

https://www.gov.uk/tax-codes/why-tax-code-change

Why your tax code might change

HMRC may update your tax code if:

• you start to get income from an additional job or pension

• your weekly State Pension amount changes

• your employer tells HMRC you have started or stopped getting benefits from your job

• you get taxable state benefits

• you claim Marriage Allowance

• you claim expenses that you get tax relief

My tax code includes deductions for interest, rental income and taxable benefit. I prefer it that way. 

I would still suggest to email HMRC through their community forum and have guidance from them. In case of any HMRC correction for past years for any reason and because of tax code adjustments, you may end up having unusual tax liability. It’s not about choice, it’s about following correct guidance. 

I am ex HMRC, am employed and have a large private client portfolio. Thanks for the advice though.

But are you a "Tax Accountant" 😉

Joke.

Much like some of the posts in this thread.

Depends on the client!  I have been called worse! Not even sure what a tax accountant is. 

Ayr_Rage

Now it gets even more bizarre.

The SA calculation which is available once you complete the SA form clearly shows how HMRC apply the allowance for savings interest.

ArGee68

This thread has gone off topic thanks to the nonsense postings from someone who has little understanding of the UK tax system.  

To answer OP's query, if there was an adjustment to your tax code for untaxed interest then then you will have paid tax on this amount within the tax deducted from your salary via the PAYE system.  For example, if you have salary of £20K and a "normal" tax code (1257L) you would have £1,486 PAYE deducted from your pay during the year.  However, if your code was adjusted for untaxed interest of £1,000 your tax code would be 1157L and therefore the PAYE deducted from your salary over the year would be £1,686.  £1,486 of this is tax on your salary and £200 being tax due on interest.

When you filed your tax return you will have included the gross salary and PAYE tax deducted figures from your P60 and these will be included within your final tax calculation.     Therefore you will have "credit" for the £200 you have paid on interest already through your tax code and any further under or overpayment will be the balancing figure. 

I hope that make sense.

Any adjustment to your tax code for untaxed interest should be after taking into account the £1000 personal savings allowance.  e.g.  I received untaxed interest of £1,069 in 2017/18 and my tax code for 2018/19 was adjusted for £69.