How do taxable savings affect a tax code?

AstonSmith

Hello all,

My code has been 1257L for a few years, but I was notified that it's been reduced to 1187L this tax year.

I believe this £700 reduction comes from the taxable savings interest I earned last year, as the deduction amount shown on the HMRC app lines up perfectly to the pound with my account's gross income statement's figure.

I saw this MSE article and it says,

"If you don't do self-assessment, any tax you owe on interest will be paid through changes to your tax code. So you'll get a lower personal allowance for income tax to pay it. HMRC will look at how much you got in savings interest last year and base your tax code next year on that if you went over your personal savings allowance."

I thought I was entitled to earn £1000 in taxable savings interest due to the 'L', and £700<£1000.

So what's going on?

molerat

Do you pay tax on your income at the moment ?  If you do not earn enough to use your allowance HMRC often fill the gap with untaxed interest even if below £1K.  In that case it will make no difference to the amount of tax paid.

AstonSmith

molerat said:

Do you pay tax on your income at the moment ?  If you do not earn enough to use your allowance HMRC often fill the gap with untaxed interest even if below £1K.  In that case it will make no difference to the amount of tax paid.

How come they fill the gap? That seems like a weird thing to do, especially without explanation. I'm hoping to change jobs next (tax) year and if they do that again it might cause problems, but yes this year I haven't made it to the threshold.

molerat

It is just one of those silly things they do that causes no end of confusion - and posts on here.  As soon as your expected income goes above the threshold, or moves closer to it, they will remove or reduce that deduction.  If they don't remove it simply update your expected income in your on line tax account and that will automatically change it.