Estimated Savings Interest for Current Tax Year

Dazed_and_C0nfused

eskbanker said:

Dazed_and_C0nfused said:

eskbanker said:

slinger2 said:

AP3 said:

The exact same thing happened to me. Take a look at my thread here: https://forums.moneysavingexpert.com/discussion/6645592/do-hmrc-see-alternative-income-live-now/p1?new=1

I've just been given a K700X tax code. They don't take any tax out of my state pension or my savings interest. So they got to take all my income tax out of my £10k private pension. I suppose it's all swing and roundabouts but the whole thing seems pretty daft to me.

What alternative method of collecting tax during the year, rather than many months after its end, would you suggest?

Sometimes I do wonder if George Osborne's major changes to taxation of interest were really that great an idea.

Most people had basic rate tax deducted and also had no need to interact with HMRC.

HMRC had less phone calls, letters etc about interest to handle.

The treasure must surely have been getting significantly more money.  Which it could clearly benefit from.

Change isn't always good!

Point taken about the pre-2016 regime for taxing savings interest at source, but even back then there'd presumably have been the need to adjust tax coding to collect anticipated liabilities via PAYE for those with enough state and private pension income to exceed their personal allowance?

Yes, I was just thinking of the interest element really.  That clearly causes more issues for some people than it did years ago. 

Kim_13

eskbanker said:

slinger2 said:

AP3 said:

The exact same thing happened to me. Take a look at my thread here: https://forums.moneysavingexpert.com/discussion/6645592/do-hmrc-see-alternative-income-live-now/p1?new=1

I've just been given a K700X tax code. They don't take any tax out of my state pension or my savings interest. So they got to take all my income tax out of my £10k private pension. I suppose it's all swing and roundabouts but the whole thing seems pretty daft to me.

What alternative method of collecting tax during the year, rather than many months after its end, would you suggest?

It seems pretty daft to me that there isn’t a mechanism for them to deduct tax from a State Pension - leading to the messy situation currently in which the Chancellor has said that those on State Pension only won’t pay any tax, but if someone then has to pay that tax by virtue of receiving interest (it’s currently unclear as to whether being within the PSA will trigger it, but it seems more likely that it would do so than ISA interest - it’s still taxable income in excess of the State Pension only amount) they will be dragged into some form of assessment/contacting HMRC to pay the amount due as there is no other way for it to be collected as things stand. 

It would be so much simpler to unfreeze the personal allowance and align it with the new State Pension maximum, but I guess they will be looking at whether that will cost them more than finding a way to deduct from State Pension payments. 

Dazed_and_C0nfused

Kim_13 said:

eskbanker said:

slinger2 said:

AP3 said:

The exact same thing happened to me. Take a look at my thread here: https://forums.moneysavingexpert.com/discussion/6645592/do-hmrc-see-alternative-income-live-now/p1?new=1

I've just been given a K700X tax code. They don't take any tax out of my state pension or my savings interest. So they got to take all my income tax out of my £10k private pension. I suppose it's all swing and roundabouts but the whole thing seems pretty daft to me.

What alternative method of collecting tax during the year, rather than many months after its end, would you suggest?

It seems pretty daft to me that there isn’t a mechanism for them to deduct tax from a State Pension - leading to the messy situation currently in which the Chancellor has said that those on State Pension only won’t pay any tax, but if someone then has to pay that tax by virtue of receiving interest (it’s currently unclear as to whether being within the PSA will trigger it, but it seems more likely that it would do so than ISA interest - it’s still taxable income in excess of the State Pension only amount) they will be dragged into some form of assessment/contacting HMRC to pay the amount due as there is no other way for it to be collected as things stand. 

It would be so much simpler to unfreeze the personal allowance and align it with the new State Pension maximum, but I guess they will be looking at whether that will cost them more than finding a way to deduct from State Pension payments. 

Most people in that situation wouldn't be able to utilise the PSA rate band though.  And if they could then it could be argued they have the funds to pay the tax on the State Pension.

The budget announcement did refer to State Pension being the "sole" income.

MsSED

slinger2 said:

AP3 said:

The exact same thing happened to me. Take a look at my thread here: https://forums.moneysavingexpert.com/discussion/6645592/do-hmrc-see-alternative-income-live-now/p1?new=1

I've just been given a K700X tax code. They don't take any tax out of my state pension or my savings interest. So they got to take all my income tax out of my £10k private pension. I suppose it's all swing and roundabouts but the whole thing seems pretty daft to me.

Yes, this is what is happening to me too and came out of the blue, which is what I feel aggrieved about.

MsSED

Dazed_and_C0nfused said:

eskbanker said:

slinger2 said:

AP3 said:

The exact same thing happened to me. Take a look at my thread here: https://forums.moneysavingexpert.com/discussion/6645592/do-hmrc-see-alternative-income-live-now/p1?new=1

I've just been given a K700X tax code. They don't take any tax out of my state pension or my savings interest. So they got to take all my income tax out of my £10k private pension. I suppose it's all swing and roundabouts but the whole thing seems pretty daft to me.

What alternative method of collecting tax during the year, rather than many months after its end, would you suggest?

Sometimes I do wonder if George Osborne's major changes to taxation of interest were really that great an idea.

Most people had basic rate tax deducted and also had no need to interact with HMRC.

HMRC had less phone calls, letters etc about interest to handle.

The treasure must surely have been getting significantly more money.  Which it could clearly benefit from.

Change isn't always good!

Absolutely agree!

wmb194

Dazed_and_C0nfused said:

eskbanker said:

slinger2 said:

AP3 said:

The exact same thing happened to me. Take a look at my thread here: https://forums.moneysavingexpert.com/discussion/6645592/do-hmrc-see-alternative-income-live-now/p1?new=1

I've just been given a K700X tax code. They don't take any tax out of my state pension or my savings interest. So they got to take all my income tax out of my £10k private pension. I suppose it's all swing and roundabouts but the whole thing seems pretty daft to me.

What alternative method of collecting tax during the year, rather than many months after its end, would you suggest?

Sometimes I do wonder if George Osborne's major changes to taxation of interest were really that great an idea.

Most people had basic rate tax deducted and also had no need to interact with HMRC.

HMRC had less phone calls, letters etc about interest to handle.

The treasure must surely have been getting significantly more money.  Which it could clearly benefit from.

Change isn't always good!

HMRC had lots of non-taxpayers calling up to reclaim overpaid tax on interest - R85s were per account any they often
forgot to fill them in - and higher rate taxpayers needed to complete SAs to pay the >20% they owed. The PSA plus paying interest gross was an attempt to reduce the burden on taxpayers and HMRC. Obviously it was a very low interest rate world back then so most people then fell within the £1000/£500 0% band and little tax was being raised on interest anyway. Today...

Like the reversal this year on Isa rules, I'd imagine going back to the old system of 20% tax at source, R85s and higher rate taxpayers all needing to compete SAs wouldn't be too hard to implement in theory but HMRC's struggling as it is.

Below is the section of the March 2015 budget that set out the rationale.

https://assets.publishing.service.gov.uk/media/5a800aabed915d74e622c206/47881_Budget_2015_Web_Accessible.pdf

slinger2

As always, if you don't increase the allowance you catch more people. 50% inflation since 2016. Of course, raising the allowance reduces the government income.

Looks like the current plan is not to go back to taxing at source. They seem to hoping that forcing savers to give their NI number will make it easier for them to match savers with tax payers, rather than the current system of using some combination of name, address and date of birth.

Kim_13

I filled out an R85 and still ended up being taxed because the bank failed to process it correctly. I do wonder whether the average person has more accounts now that we’ve had the PSA, which would make a return to the old system more burdensome for non-taxpayers. Plus all the people that have been fiscal dragged into higher rate tax, so a lot more tax returns for HMRC to deal with.