clarification on a letter from HMRC

Emily_Joy

Please can someone help. Last year for the first time the interest I received from multiple saving accounts was over the personal saving allowance, in fact, I received about £1370 in interest. The email from HMRC read that my options are either to pay about £70 extra tax manually, or  they will adjust the Tax Code, to collect it in stages. I thought, perhaps wrongly, the latter is easier.

Now I received a letter from HMRC - sent to a non existing  address, that was a mixture of my old house postcode and a street address of my employer 3 years ago, that read the following:

I am a very puzzled by these deductions. I understand £373 is the extra interest I received. But where the second deduction £699 is from and why do they sum up?

Somehow I didn't anticipate that having extra £373 in tax would lead to reduction in tax-free allowance by £1000; which means I have no clue how HMRC works

Dazed_and_C0nfused

Emily_Joy said:

Please can someone help. Last year for the first time the interest I received from multiple saving accounts was over the personal saving allowance, in fact, I received about £1370 in interest. The email from HMRC read that my options are either to pay about £70 extra tax manually, or  they will adjust the Tax Code, to collect it in stages. I thought, perhaps wrongly, the latter is easier.

Now I received a letter from HMRC - sent to a non existing  address, that was a mixture of my old house postcode and a street address of my employer 3 years ago, that read the following:

I am a very puzzled by these deductions. I understand £373 is the extra interest I received. But where the second deduction £699 is from and why do they sum up?

Somehow I didn't anticipate that having extra £373 in tax would lead to reduction in tax-free allowance by £1000; which means I have no clue how HMRC works

If you are a basic rate taxpayer then that £699 reduction in tax code allowances will mean you pay an extra £139.80 in tax.

Which could well be the £70 you owe for 2023-24 and an estimate of ~£70 owed for 2024-25.

The second £70 for 2024-25 will be reviewed when HMRC get the actual interest details from the banks later this summer.

Emily_Joy

Dazed_and_C0nfused said:

Emily_Joy said:

Please can someone help. Last year for the first time the interest I received from multiple saving accounts was over the personal saving allowance, in fact, I received about £1370 in interest. The email from HMRC read that my options are either to pay about £70 extra tax manually, or  they will adjust the Tax Code, to collect it in stages. I thought, perhaps wrongly, the latter is easier.

Now I received a letter from HMRC - sent to a non existing  address, that was a mixture of my old house postcode and a street address of my employer 3 years ago, that read the following:

I am a very puzzled by these deductions. I understand £373 is the extra interest I received. But where the second deduction £699 is from and why do they sum up?

Somehow I didn't anticipate that having extra £373 in tax would lead to reduction in tax-free allowance by £1000; which means I have no clue how HMRC works

If you are a basic rate taxpayer then that £699 reduction in tax code allowances will mean you pay an extra £139.80 in tax.

Which could well be the £70 you owe for 2023-24 and an estimate of ~£70 owed for 2024-25.

The second £70 for 2024-25 will be reviewed when HMRC get the actual interest details from the banks later this summer.

Thanks, but why extra £373 reduction? It seems this has already be accounted in £699? 

Dazed_and_C0nfused

Emily_Joy said:

Dazed_and_C0nfused said:

Emily_Joy said:

Please can someone help. Last year for the first time the interest I received from multiple saving accounts was over the personal saving allowance, in fact, I received about £1370 in interest. The email from HMRC read that my options are either to pay about £70 extra tax manually, or  they will adjust the Tax Code, to collect it in stages. I thought, perhaps wrongly, the latter is easier.

Now I received a letter from HMRC - sent to a non existing  address, that was a mixture of my old house postcode and a street address of my employer 3 years ago, that read the following:

I am a very puzzled by these deductions. I understand £373 is the extra interest I received. But where the second deduction £699 is from and why do they sum up?

Somehow I didn't anticipate that having extra £373 in tax would lead to reduction in tax-free allowance by £1000; which means I have no clue how HMRC works

If you are a basic rate taxpayer then that £699 reduction in tax code allowances will mean you pay an extra £139.80 in tax.

Which could well be the £70 you owe for 2023-24 and an estimate of ~£70 owed for 2024-25.

The second £70 for 2024-25 will be reviewed when HMRC get the actual interest details from the banks later this summer.

Thanks, but why extra £373 reduction? It seems this has already be accounted in £699? 

There seems to be three tax years involved now.

Tax owed for 2023-24, tax owed for 204-25 (rolled up in the £699).

And for 2025-26 HMRC are currently estimating you will get interest of £1,373.  The first £1,000 is taxed at 0% and the next £373 is taxed at 20%.  The tax code deduction of £373 is trying to collect that 20% tax.

The reason they are called different things is that the previous years are now tax underpayments and the current tax year is sorted by a normal tax code deduction (the untaxed interest deduction).

Emily_Joy

Dazed_and_C0nfused said:

Emily_Joy said:

Dazed_and_C0nfused said:

Emily_Joy said:

Please can someone help. Last year for the first time the interest I received from multiple saving accounts was over the personal saving allowance, in fact, I received about £1370 in interest. The email from HMRC read that my options are either to pay about £70 extra tax manually, or  they will adjust the Tax Code, to collect it in stages. I thought, perhaps wrongly, the latter is easier.

Now I received a letter from HMRC - sent to a non existing  address, that was a mixture of my old house postcode and a street address of my employer 3 years ago, that read the following:

I am a very puzzled by these deductions. I understand £373 is the extra interest I received. But where the second deduction £699 is from and why do they sum up?

Somehow I didn't anticipate that having extra £373 in tax would lead to reduction in tax-free allowance by £1000; which means I have no clue how HMRC works

If you are a basic rate taxpayer then that £699 reduction in tax code allowances will mean you pay an extra £139.80 in tax.

Which could well be the £70 you owe for 2023-24 and an estimate of ~£70 owed for 2024-25.

The second £70 for 2024-25 will be reviewed when HMRC get the actual interest details from the banks later this summer.

Thanks, but why extra £373 reduction? It seems this has already be accounted in £699? 

There seems to be three tax years involved now.

Tax owed for 2023-24, tax owed for 204-25 (rolled up in the £699).

And for 2025-26 HMRC are currently estimating you will get interest of £1,373.  The first £1,000 is taxed at 0% and the next £373 is taxed at 20%.  The tax code deduction of £373 is trying to collect that 20% tax.

The reason they are called different things is that the previous years are now tax underpayments and the current tax year is sorted by a normal tax code deduction (the untaxed interest deduction).

Thank you, this makes more sense now. So... have I paid the tax 2023-24 manually, what the difference would be?

Would this reduce £699 by half?...

Dazed_and_C0nfused

Emily_Joy said:

Dazed_and_C0nfused said:

Emily_Joy said:

Dazed_and_C0nfused said:

Emily_Joy said:

Please can someone help. Last year for the first time the interest I received from multiple saving accounts was over the personal saving allowance, in fact, I received about £1370 in interest. The email from HMRC read that my options are either to pay about £70 extra tax manually, or  they will adjust the Tax Code, to collect it in stages. I thought, perhaps wrongly, the latter is easier.

Now I received a letter from HMRC - sent to a non existing  address, that was a mixture of my old house postcode and a street address of my employer 3 years ago, that read the following:

I am a very puzzled by these deductions. I understand £373 is the extra interest I received. But where the second deduction £699 is from and why do they sum up?

Somehow I didn't anticipate that having extra £373 in tax would lead to reduction in tax-free allowance by £1000; which means I have no clue how HMRC works

If you are a basic rate taxpayer then that £699 reduction in tax code allowances will mean you pay an extra £139.80 in tax.

Which could well be the £70 you owe for 2023-24 and an estimate of ~£70 owed for 2024-25.

The second £70 for 2024-25 will be reviewed when HMRC get the actual interest details from the banks later this summer.

Thanks, but why extra £373 reduction? It seems this has already be accounted in £699? 

There seems to be three tax years involved now.

Tax owed for 2023-24, tax owed for 204-25 (rolled up in the £699).

And for 2025-26 HMRC are currently estimating you will get interest of £1,373.  The first £1,000 is taxed at 0% and the next £373 is taxed at 20%.  The tax code deduction of £373 is trying to collect that 20% tax.

The reason they are called different things is that the previous years are now tax underpayments and the current tax year is sorted by a normal tax code deduction (the untaxed interest deduction).

Thank you, this makes more sense now. So... have I paid the tax 2023-24 manually, what the difference would be?

Would this reduce £699 by half?...

Yes, there would be £70 less tax owed so the tax code deduction for the underpayment would be halved, give or take a £ or two

jnm21

Dazed_and_C0nfused said:

And for 2025-26 HMRC are currently estimating you will get interest of £1,373.  The first £1,000 is taxed at 0% and the next £373 is taxed at 20%.  The tax code deduction of £373 is trying to collect that 20% tax.

Is this (personally I feel pathetic) guesstimation of interest not yet earned common?  A family member recently was shocked by the increase in tax on her pension after I assume a very similar letter (possibly a P8) - we put it down to the relatively high interest rates in the last few years, plus moderate increase in the pension.  Now I feel compelled to dig deeper (I had thought or rather, I must admit, assumed that tax  over & above the PSA was handled in arrears at all times - I did think it was generous of HMRC).

I say that the estimate seems pathetic, because interest rates have dropped by around 20-30% (from over 6%, if memory serves, to closer to 4%) so to see that in the OP's case they have predicted an increase in interest (albeit only £3) above the PSA is shocking.  In the case I refer to, I am working to limit the exposure, by utilisation of ISA allowances & fixed term accounts paying in future tax years (though I can't find any accounts willing to pay a 2 year term on maturity only).  Hopefully the combination of this planning & falling rates will fully remove the interest exposed to tax.

Can these estimates be challenged or is it a case of claiming back the over deduction after the fact?

Sarahspangles

jnm21 said:

Dazed_and_C0nfused said:

And for 2025-26 HMRC are currently estimating you will get interest of £1,373.  The first £1,000 is taxed at 0% and the next £373 is taxed at 20%.  The tax code deduction of £373 is trying to collect that 20% tax.

Is this (personally I feel pathetic) guesstimation of interest not yet earned common?  A family member recently was shocked by the increase in tax on her pension after I assume a very similar letter (possibly a P8) - we put it down to the relatively high interest rates in the last few years, plus moderate increase in the pension.  Now I feel compelled to dig deeper (I had thought or rather, I must admit, assumed that tax  over & above the PSA was handled in arrears at all times - I did think it was generous of HMRC).

I say that the estimate seems pathetic, because interest rates have dropped by around 20-30% (from over 6%, if memory serves, to closer to 4%) so to see that in the OP's case they have predicted an increase in interest (albeit only £3) above the PSA is shocking.  In the case I refer to, I am working to limit the exposure, by utilisation of ISA allowances & fixed term accounts paying in future tax years (though I can't find any accounts willing to pay a 2 year term on maturity only).  Hopefully the combination of this planning & falling rates will fully remove the interest exposed to tax.

Can these estimates be challenged or is it a case of claiming back the over deduction after the fact?

HMRC simply use the interest received figure from a previous year, until they have better information. It’s a simple matter to amend the figure to what you expect to receive, which you can do via your personal tax account.

sheramber

You can Log into  your personal tax account and change the amount to your own estimated figure. 

A new code will processed. 

https://www.gov.uk/personal-tax-account

jnm21

Thank you both so much - looking forward to managing that (just log in is never that simple with my older family members)!