Tax code change due to savings income - pay off now or just leave it?

BreakingGlass

Dazed_and_C0nfused said:

It is a little unusual that so many people are reporting that updated 2024-25 tax codes are happening before 2023-24 is finalised.

Yes I found this strange!

I submitted a Tax Return (my first for about 5 years) in June 2024 because I had over £10k savings interest in the 2023/24 Tax Year.  At the time, my calculation showed that there was no tax to pay (I have no other taxable income).
When submitting my return, I ticked the box to say that I did not want them to collect any tax due via my 2025/26 Tax Code.

On logging in to HMRC, I still get the following message (my italics):

Your Income Tax has not been calculated yet for 6 April 2023 to 5 April 2024

---

There is no need for you to contact HMRC about this.

We aim to calculate your Income Tax by 5 April 2025. Your Income Tax will be updated when that happens.

However, on 31 Dec 24 HMRC changed my Tax Code to 56L, with an explanation to say that 'we changed your Tax Code because your Untaxed interest on savings and investments has been increased from £7,132 to £12,001.'

From my records, the £7,132 figure was their estimate of my interest for 2022/23 (it was actually about £1500 more).  Hence it would appear that they have adjusted my current tax code based on what Banks/Building societies have reported for 2023/24.  I am hoping that when they eventually process my 2023/24 Tax Return they will see that I do not want any income tax due collected via my Tax Code, and revert my code to 1257L prior to Tax Year 2025/26.

wiseonesomeofthetime

In my opinion, offering us the facility to pay what we owe in untaxed interest should be the default. Not messing with our tax codes.

Most people set their budgets to their known income, and do not expect that income to go down year on year.

Altering tax code, for PAYE anyway, could then be the backstop.

eskbanker

wiseonesomeofthetime said:

In my opinion, offering us the facility to pay what we owe in untaxed interest should be the default. Not messing with our tax codes.

Most people set their budgets to their known income, and do not expect that income to go down year on year.

Altering tax code, for PAYE anyway, could then be the backstop.

If you have the money to pay anyway, you can just draw down those funds monthly to make up for any unexpected PAYE deductions, which has the effect of deferring payment and earning a bit of interest in the mean time?

wiseonesomeofthetime

eskbanker said:

wiseonesomeofthetime said:

In my opinion, offering us the facility to pay what we owe in untaxed interest should be the default. Not messing with our tax codes.

Most people set their budgets to their known income, and do not expect that income to go down year on year.

Altering tax code, for PAYE anyway, could then be the backstop.

If you have the money to pay anyway, you can just draw down those funds monthly to make up for any unexpected PAYE deductions, which has the effect of deferring payment and earning a bit of interest in the mean time?

You most certainly can, but it's still untidy in my opinion. Rather deal with it cleanly, than mess for a few pence extra interest.

Remember, your tax code is also adjusted to recover tax on interest you haven't received yet, based on estimated predictions.

eskbanker

wiseonesomeofthetime said:

eskbanker said:

wiseonesomeofthetime said:

In my opinion, offering us the facility to pay what we owe in untaxed interest should be the default. Not messing with our tax codes.

Most people set their budgets to their known income, and do not expect that income to go down year on year.

Altering tax code, for PAYE anyway, could then be the backstop.

If you have the money to pay anyway, you can just draw down those funds monthly to make up for any unexpected PAYE deductions, which has the effect of deferring payment and earning a bit of interest in the mean time?

You most certainly can, but it's still untidy in my opinion. Rather deal with it cleanly, than mess for a few pence extra interest.

Remember, your tax code is also adjusted to recover tax on interest you haven't received yet, based on estimated predictions.

Sure, but you can update those predictions if you believe them to be inaccurate.  I think that's a separate issue anyway - I was comparing automated deductions (throughout all remaining months of the tax year) with your preferred mechanism of one-off settlement, which would be earlier in the year, so you're effectively proposing payment even further in advance (they're not going to accept retrospective collection once they're aware of the income stream)!