Tax code changes - Looking to make some sense

Sarahspangles

flaneurs_lobster said:

Sarahspangles said:

n15h said:

If I don't inform HMRC that my savings are ISA-wrapped, do they revisit tax codes again in the year and adjust tax codes, or do they provide a rebate instead?

HMRC never know about the ISAs (or the interest) in the first place, as they don’t require banks and building societies to report non-taxable interest to them.

If that is so, how would HMRC ever become aware of someone who had subscribed more than £20k in a year?

I was sloppy, there is an annual return that ISA Managers have to submit but it’s a list of account numbers, ISA type, investor name and address and minimal other data. It’s not supplied for the purposes of taxing the investor.

I am intrigued how HMRC will pick up oversubscription now it’s possible to have multiple ISAs. Presumably the first cases will come to light this summer/autumn once audits have run. 

eskbanker

Sarahspangles said:

I am intrigued how HMRC will pick up oversubscription now it’s possible to have multiple ISAs. Presumably the first cases will come to light this summer/autumn once audits have run. 

It's always been possible to have (or more correctly, to fund) multiple ISAs, so HMRC's compliance systems will have been capable of picking up those who oversubscribed before, e.g. anyone who paid £20K into a cash ISA and also £20K into a S&S ISA.

In fact, there was nothing physically stopping people paying £20K into one cash ISA and £20K into another one, in that this wouldn't be trapped by provider validation, but was something that HMRC would have picked up on.

In other words, the fact that it's now permitted to concurrently fund multiple ISAs of the same type, while still subject to the overall £20K limit, shouldn't need anything more than a relatively minor tweak to the existing rules built into the HMRC systems - it's effectively removing/disabling a rule rather than adding anything.

Sarahspangles

eskbanker said:

Sarahspangles said:

I am intrigued how HMRC will pick up oversubscription now it’s possible to have multiple ISAs. Presumably the first cases will come to light this summer/autumn once audits have run. 

It's always been possible to have (or more correctly, to fund) multiple ISAs, so HMRC's compliance systems will have been capable of picking up those who oversubscribed before, e.g. anyone who paid £20K into a cash ISA and also £20K into a S&S ISA.

In fact, there was nothing physically stopping people paying £20K into one cash ISA and £20K into another one, in that this wouldn't be trapped by provider validation, but was something that HMRC would have picked up on.

In other words, the fact that it's now permitted to concurrently fund multiple ISAs of the same type, while still subject to the overall £20K limit, shouldn't need anything more than a relatively minor tweak to the existing rules built into the HMRC systems - it's effectively removing/disabling a rule rather than adding anything.

I just had a look at the return that they submit, you’re right. They must already be looking for duplicated names and addresses across providers so the main additional step is to sum the total contribution. I bet that’s a fun job!

eskbanker

Sarahspangles said:

I just had a look at the return that they submit, you’re right. They must already be looking for duplicated names and addresses across providers so the main additional step is to sum the total contribution. I bet that’s a fun job!

But the point is that summing up total contribution isn't an additional step, it's one they already do!

n15h

Thanks everyone for your responses. My next steps will be to work out (on the weekend) the actual interest earned for 2023/24 and 2024/25, and possible interest to be earned for 2025/26 for any savings held outside of ISAs and Premium Bonds.

I'll then use that to update the estimated interest in the personal account when the new tax year starts, and receive an updated tax code for 2025/26.

This is the first time I received these notices and am not familiar with how this all works. To help with my understanding I'd like to please ask for clarity on the below point in the tax code notices:

• Less Adjustment for tax you owe (earlier year) £967

Should this reduction be £193.40 as that's the actual amount of tax owed?

If anyone knows a good source of information to help a novice better understand these notices, please share. Thanks 

Dazed_and_C0nfused

n15h said:

Thanks everyone for your responses. My next steps will be to work out (on the weekend) the actual interest earned for 2023/24 and 2024/25, and possible interest to be earned for 2025/26 for any savings held outside of ISAs and Premium Bonds.

I'll then use that to update the estimated interest in the personal account when the new tax year starts, and receive an updated tax code for 2025/26.

This is the first time I received these notices and am not familiar with how this all works. To help with my understanding I'd like to please ask for clarity on the below point in the tax code notices:

• Less Adjustment for tax you owe (earlier year) £967

Should this reduction be £193.40 as that's the actual amount of tax owed?

If anyone knows a good source of information to help a novice better understand these notices, please share. Thanks 

The deduction/adjustment of £967 is to ensure you pay an extra £193.40.

By reducing your tax code allowances by £967 this means your employer/pension payer is going to tax you on an extra £967 of your earnings/pension.  Assuming you are a basic rate payer then this will mean you pay an extra £193.40 in tax (967 x 20%).

LITRG usually have good explanations.


https://www.litrg.org.uk/tax-nic/how-tax-collected/pay-you-earn-paye/paye-codes

n15h

Thank you @Dazed_and_C0nfused - that's making more sense to me now. I was interpreting it (incorrectly) to mean that £193.40 would be taken in 1 go, but instead HMRC are taking it through equal instalments over the 2025/26 tax year which is why the tax code allowance is reduced by £967.

I was a basic rate tax payer but recently started a new job where the annual pay is above the basic rate threshold. I've increased my workplace pension contributions and my basic calculations suggest the gross pay (after pension deduction) used for tax calculations will hopefully not exceed the basic rate threshold.

I will look at the link shared and grow my understanding.