1257L for 2024 versus tax on interest on savings

deutsch

Through PAYE, if you are on 1257L tax code in Apri 2024 (first pay slip), but you know that your interest on savings exceeded £1000, when should I expect HMRC to correct the code (if ever)?

It's only really since 2023/24 that interest rates have shot back up where you can get 5%+ thus taking some people over the allowance. I did use up my ISA and started buying premium bonds, but I know my savings split across various banks, the interest earned probably exceeded the allowance, but I also didn't keep track either. Some I have annual statements and some I had statements during closure. Some I didn't either. I just juggled for best rates whilst splitting the money. If I can't keep track, can HMRC too 

eskbanker

Over what period did your interest exceed £1000?

If you're referring to 2023/24, HMRC will identify this from the returns submitted by the providers (unless you self-assess) and issue a statement in the autumn, and then collect that underpaid tax via PAYE coding adjustment in 2025/26.

deutsch

eskbanker said:

Over what period did your interest exceed £1000?

If you're referring to 2023/24, HMRC will identify this from the returns submitted by the providers (unless you self-assess) and issue a statement in the autumn, and then collect that underpaid tax via PAYE coding adjustment in 2025/26.

Thank you for your reply. I don't self-assess. It was Apr23-Mar24. I thought they'd correct in Apr24-Mar25. As you say the autumn, I'll just have to wait and see. Never been taxed on savings before! The allowance should be higher to incentivise = savings or reflect that interest rates shot up has pushed some people into tax because they were good with managing their accounts and not leaving it at pantry 0.1% accounts.

eskbanker

deutsch said:
Never been taxed on savings before! The allowance should be higher to incentivise = savings or reflect that interest rates shot up has pushed some people into tax because they were good with managing their accounts and not leaving it at pantry 0.1% accounts.

Up to 2016, everyone was taxed on savings (outside ISAs, etc)....

There will always be different opinions about how best to calibrate tax concessions, but with all due respect, if you used up your ISA and premium bonds allowances, and still earned enough interest from taxable accounts to exceed your personal savings allowance, it doesn't sound like you needed much incentive to save!

And, as ever, it's generally best to focus on maximising net return rather than trying to avoid (and resent) tax as such....

InvesterJones

deutsch said:

eskbanker said:

Over what period did your interest exceed £1000?

If you're referring to 2023/24, HMRC will identify this from the returns submitted by the providers (unless you self-assess) and issue a statement in the autumn, and then collect that underpaid tax via PAYE coding adjustment in 2025/26.

Thank you for your reply. I don't self-assess. It was Apr23-Mar24. I thought they'd correct in Apr24-Mar25. As you say the autumn, I'll just have to wait and see. Never been taxed on savings before! The allowance should be higher to incentivise = savings or reflect that interest rates shot up has pushed some people into tax because they were good with managing their accounts and not leaving it at pantry 0.1% accounts.

I think there's still plenty of incentive - 75% of something is still better than 100% of nothing, and the current system, while laggy, does at least mean you get the benefit of earning yet more on the taxable portion for up to a couple of years before they collect. And best of all, we don't have to do anything these days - gone are the days of collecting basic rate at point of earning and then having to claim back all the times it didn't apply!

n3ophyte

Are we given the option to make a lump sum tax payment in the autumn rather than suffer a tax code adjustment?

InvesterJones

n3ophyte said:

Are we given the option to make a lump sum tax payment in the autumn rather than suffer a tax code adjustment?

Yes I think so - I think the letter will say you don't need to do anything as they'll adjust your tax code, but in the information sheet there's also instructions for how to pay it online as a lump sum.

eskbanker

n3ophyte said:

Are we given the option to make a lump sum tax payment in the autumn rather than suffer a tax code adjustment?

Yes, you're entitled to decline HMRC's offer of an interest-free loan....

ThePirates

This is all a bit new to me! So if I earn more than my allowance in a year, I don't do self assessment, the institutions tell HMRC, who then send out a 'bill' to me. Paid via following years tax code or lump sum. 
I don't have to keep track of it all and tell them?

Dazed_and_C0nfused

ThePirates said:

This is all a bit new to me! So if I earn more than my allowance in a year, I don't do self assessment, the institutions tell HMRC, who then send out a 'bill' to me. Paid via following years tax code or lump sum. 
I don't have to keep track of it all and tell them?

If your interest is less than £10k and you don't have any other reason to complete a tax return then no, you don't need to file one.

It typically works on a 3 year cycle,

Year 1 you earn the interest
Year 2 HMRC calculate any tax owed for year 1
Year 3 your tax code is adjusted to collect the tax owed for year 1.

But if you want to pay the tax direct to HMRC after the calculation is issued that's fine. 

Some people prefer that and have it sorted and no extra tax code entry.

Others prefer to avoid paying it back as long as possible so leave it to be collected via their tax code 

Albermarle

deutsch said:

eskbanker said:

Over what period did your interest exceed £1000?

If you're referring to 2023/24, HMRC will identify this from the returns submitted by the providers (unless you self-assess) and issue a statement in the autumn, and then collect that underpaid tax via PAYE coding adjustment in 2025/26.

Thank you for your reply. I don't self-assess. It was Apr23-Mar24. I thought they'd correct in Apr24-Mar25. As you say the autumn, I'll just have to wait and see. Never been taxed on savings before! The allowance should be higher to incentivise = savings or reflect that interest rates shot up has pushed some people into tax because they were good with managing their accounts and not leaving it at pantry 0.1% accounts.

By International standards, the ability of a UK citizen to earn interest tax free is very generous.
Cash ISA's, Premium Bonds and the Personal savings allowance mean that a large amount of interest can be sheltered from the taxman. People who have low or no earnings can earn even more tax free.
In some countries, like Ireland for example you pay tax on nearly all interest earned, and to rub salt in the wound the interest rates on offer are poor as well. 
So we should think ourselves lucky !