Income Tax on Savings

kassy64

Hi, I need some help to get my tax code back to standard code of 1257L.
I paid £100.80 (one off payment by bank transfer) to HMRC recently for unpaid income tax on savings interest for the year 2023-2024. All fine and dandy no problem, however last week I received a letter from HMRC stating my tax code is changing to 1207LX with immediate effect as they are 'anticipating' that I have a similar amount of interest this year, which I don't as I've paid off mortgage, bought a car, done some work on the house and moved more into ISA's plus interest rates have dropped. So, effectively I definitely will not be going over the £1000 psa this year or next. I have phoned HMRC twice but they have told me on both occasions that they cant access my records possibly as I worked for the government until recently ( I know I used to have a special HMRC number to ring for government workers but as now retired assumed I would contact normal line). Been promised callbacks which never happen. Anyway, need this sorting as I will start paying more tax than required at the end of this month. Its not a massive amount but would rather not overpay and have to reclaim as that doesn't seem right. Any idea whether this can be done online, I did check but couldn't find anything. Thanks in advance.

eskbanker

Go to your online tax account and you can adjust the expected savings interest there, it may be confusingly labelled as 'add investment income'.

kassy64

eskbanker said:

Go to your online tax account and you can adjust the expected savings interest there, it may be confusingly labelled as 'add investment income'.

Ah ok thanks, I will have a look. Standby as I may need more help.

kassy64

eskbanker said:

Go to your online tax account and you can adjust the expected savings interest there, it may be confusingly labelled as 'add investment income'.

Found it many thanks for your assistance, It did ask how much untaxed income from banks and building societies I had earnt. Not sure if this meant before the £1000 psa or after. I put £0.00 as it is effectively untaxed intertest as tax is not liable on the first £1000 (fingers crossed that's correct). Anyway, states an update can take 15 days, hopefully this will reset my tax code back to usual code. Still not sure why HMRC assume you will get the same interest year on year, surely best to send bill as per 2023-2024. In my opinion just confuses things and if your not on the ball could easily end up paying more tax than required. Thanks again for your help eskbanker.

Dazed_and_C0nfused

kassy64 said:

eskbanker said:

Go to your online tax account and you can adjust the expected savings interest there, it may be confusingly labelled as 'add investment income'.

Found it many thanks for your assistance, It did ask how much untaxed income from banks and building societies I had earnt. Not sure if this meant before the £1000 psa or after. I put £0.00 as it is effectively untaxed intertest as tax is not liable on the first £1000 (fingers crossed that's correct). Anyway, states an update can take 15 days, hopefully this will reset my tax code back to usual code. Still not sure why HMRC assume you will get the same interest year on year, surely best to send bill as per 2023-2024. In my opinion just confuses things and if your not on the ball could easily end up paying more tax than required. Thanks again for your help eskbanker.

Oh dear.  HMRC are interested in taxable income.  Which is what you should report, even if some is covered by your Personal Allowance or taxed at 0%.

And using the previous years figure in tax codes (not just for interest) has happened for decades, nothing new there.  

eskbanker

kassy64 said:
Still not sure why HMRC assume you will get the same interest year on year, surely best to send bill as per 2023-2024. In my opinion just confuses things and if your not on the ball could easily end up paying more tax than required.

Potentially, yes, but only temporarily, in that it would all come out in the wash after the end of the tax year when tax paid is reconciled with liabilities and corrective refunds or bills are issued.  It's far from a perfect system but if the alternative is that everyone only had to settle income tax liabilities significantly in arrears, it's not difficult to understand why a provisional attempt is made to collect in real time instead, even though it inherently involves estimates to start with.

kassy64

Dazed_and_C0nfused said:

kassy64 said:

eskbanker said:

Go to your online tax account and you can adjust the expected savings interest there, it may be confusingly labelled as 'add investment income'.

Found it many thanks for your assistance, It did ask how much untaxed income from banks and building societies I had earnt. Not sure if this meant before the £1000 psa or after. I put £0.00 as it is effectively untaxed intertest as tax is not liable on the first £1000 (fingers crossed that's correct). Anyway, states an update can take 15 days, hopefully this will reset my tax code back to usual code. Still not sure why HMRC assume you will get the same interest year on year, surely best to send bill as per 2023-2024. In my opinion just confuses things and if your not on the ball could easily end up paying more tax than required. Thanks again for your help eskbanker.

Oh dear.  HMRC are interested in taxable income.  Which is what you should report, even if some is covered by your Personal Allowance or taxed at 0%.

And using the previous years figure in tax codes (not just for interest) has happened for decades, nothing new there.  

Oh dear, please explain.
Also, my taxable income for unpaid tax on interest for this year shows on my account as £495 and not £1495 (which includes the £1000 allowance). So when asked what my expected taxable income for savings interest is then surely £0.00 is the correct answer otherwise I will be back to square one and they will assume that I will earn £1495 ion interest and be in same boat as previously. The only way to get this removed is to state that I have £0.00 savings interest that is liable to income tax. 

kassy64

eskbanker said:

kassy64 said:
Still not sure why HMRC assume you will get the same interest year on year, surely best to send bill as per 2023-2024. In my opinion just confuses things and if your not on the ball could easily end up paying more tax than required.

Potentially, yes, but only temporarily, in that it would all come out in the wash after the end of the tax year when tax paid is reconciled with liabilities and corrective refunds or bills are issued.  It's far from a perfect system but if the alternative is that everyone only had to settle income tax liabilities significantly in arrears, it's not difficult to understand why a provisional attempt is made to collect in real time instead, even though it inherently involves estimates to start with.

I agree, but it would appear  (from last years invoice for unpaid tax) that savings on interest updates are collected or actioned about 8 months after the tax year ends so, why should HMRC have my cash that they aren't entitled to for so long. Hence why I'm trying to sort out now.

eskbanker

kassy64 said:

eskbanker said:

kassy64 said:
Still not sure why HMRC assume you will get the same interest year on year, surely best to send bill as per 2023-2024. In my opinion just confuses things and if your not on the ball could easily end up paying more tax than required.

Potentially, yes, but only temporarily, in that it would all come out in the wash after the end of the tax year when tax paid is reconciled with liabilities and corrective refunds or bills are issued.  It's far from a perfect system but if the alternative is that everyone only had to settle income tax liabilities significantly in arrears, it's not difficult to understand why a provisional attempt is made to collect in real time instead, even though it inherently involves estimates to start with.

I agree, but it would appear  (from last years invoice for unpaid tax) that savings on interest updates are collected or actioned about 8 months after the tax year ends so, why should HMRC have my cash that they aren't entitled to for so long. Hence why I'm trying to sort out now.

Those whose interest decreases significantly from one year to the next will obviously be disadvantaged relative to those who stay the same or increase (no idea of the relative scale of these three subsets), but the process can only really be a one-size-fits-all estimate from previous year, and yes, as above, there is the option to make adjustments if deemed appropriate....

eskbanker

kassy64 said:
Also, my taxable income for unpaid tax on interest for this year shows on my account as £495 and not £1495 (which includes the £1000 allowance). So when asked what my expected taxable income for savings interest is then surely £0.00 is the correct answer otherwise I will be back to square one and they will assume that I will earn £1495 ion interest and be in same boat as previously. The only way to get this removed is to state that I have £0.00 savings interest that is liable to income tax. 

Just to address this point - you need to declare the actual expected interest income, i.e. without deducting the £1,000 personal savings allowance, as it's all taxable income, even though £1,000 of it may be taxed at 0%.

kassy64

eskbanker said:

kassy64 said:
Also, my taxable income for unpaid tax on interest for this year shows on my account as £495 and not £1495 (which includes the £1000 allowance). So when asked what my expected taxable income for savings interest is then surely £0.00 is the correct answer otherwise I will be back to square one and they will assume that I will earn £1495 ion interest and be in same boat as previously. The only way to get this removed is to state that I have £0.00 savings interest that is liable to income tax. 

Just to address this point - you need to declare the actual expected interest income, i.e. without deducting the £1,000 personal savings allowance, as it's all taxable income, even though £1,000 of it may be taxed at 0%.

Ok, the form has been submitted (possibly incorrectly), if they contact me I will explain However, the wording on the form tends to indicate that only the part that will be taxed at standard rate should be shown, as I mentioned my personal tax account shows last year unpaid tax amount as £495 they themselves have not included the £1000 psa so when asked what my expected unpaid tax amount will be I have in my opinion correctly indicated £0.00. Either way I am basically declaring that I am not liable to pay tax on any interest earned over the 12 months and that will be correct. I will update when I hear back.