HMRC estimated untaxed interest

Nigh

This seemed the most appropriate forum to ask this. I received a letter today from HMRC saying that I had underpaid tax & owed about £1600 which they would collect over the next year. This has arisen based on their estimated amount of untaxed interest on about £3k. I pay income tax by PAYE & have no high earning investments. I earn maybe £300/year from an ISA & savings. Can I find out how HMRC came up with their estimate?

Vitor

Check your Personal Tax Account online

Raymondo111

Nigh said:

This seemed the most appropriate forum to ask this. I received a letter today from HMRC saying that I had underpaid tax & owed about £1600 which they would collect over the next year. This has arisen based on their estimated amount of untaxed interest on about £3k. I pay income tax by PAYE & have no high earning investments. I earn maybe £300/year from an ISA & savings. Can I find out how HMRC came up with their estimate?

You are allowed to earn £1000.00 interest without any tax implications as long as your income is less than around £37000.00 approximately. I personally have loads of different notifications from HMRC all quoting various figures being used which I have tried to calculate from my records but still disagree with HMRC figures. I think you need to contact HMRC and ask them to supply a breakdown of the basis they are using to calculate how much you supposedly have earned over the £1000.00 annual allowance, if you have ISA’s they are tax free so should not be used.

SiliconChip

Vitor said:

Check your Personal Tax Account online

That's not going to tell the OP where HMRC have got the untaxed interest figure from, as suggested the best/quickest way to find out is to ring them, although you can also send a letter but don't expect a quick response.

eskbanker

Nigh said:

This seemed the most appropriate forum to ask this. I received a letter today from HMRC saying that I had underpaid tax & owed about £1600 which they would collect over the next year. This has arisen based on their estimated amount of untaxed interest on about £3k. I pay income tax by PAYE & have no high earning investments. I earn maybe £300/year from an ISA & savings. Can I find out how HMRC came up with their estimate?

Sounds like two separate issues being conflated here?

If they're notifying you of underpaid tax that needs to be collected then that must relate to an earlier tax year, probably the last one, i.e. 2024/25.  The figures they'll be using should be actual ones, not estimates, and will have been supplied by banks or building societies, but excluding ISA income, which is tax-free, although Zopa have apparently erroneously reported this as if taxable.

Separately, they'll use last year's reported savings income as an estimate for what you'll receive in the current year, 2025/26, unless you advise them otherwise.

When you say they'll collect underpaid tax "over the next year", do you mean they've already issued you with a PAYE coding notice for 2026/27, or just one for the rest of 2025/26 (less than four months)?

Worth sharing a copy of their calculation, redacted as necessary....

eskbanker

Raymondo111 said:

You are allowed to earn £1000.00 interest without any tax implications as long as your income is less than around £37000.00 approximately.

No idea where you've sourced that figure from, but the personal savings allowance of £1,000 applies to those with taxable income of up to £50,270, and above that the PSA is reduced to £500.

RG2015

eskbanker said:

Raymondo111 said:

You are allowed to earn £1000.00 interest without any tax implications as long as your income is less than around £37000.00 approximately.

No idea where you've sourced that figure from, but the personal savings allowance of £1,000 applies to those with taxable income of up to £50,270, and above that the PSA is reduced to £500.

I have seen a few confusing references to the amount by which the higher rate threshold exceeds the personal tax allowance.

£50,270 - £12,570 = £37,700.

Perhaps this is the source of the erroneous £37,000.

eskbanker

RG2015 said:

eskbanker said:

Raymondo111 said:

You are allowed to earn £1000.00 interest without any tax implications as long as your income is less than around £37000.00 approximately.

No idea where you've sourced that figure from, but the personal savings allowance of £1,000 applies to those with taxable income of up to £50,270, and above that the PSA is reduced to £500.

I have seen a few confusing references to the amount by which the higher rate threshold exceeds the personal tax allowance.

£50,270 - £12,570 = £37,700.

Perhaps this is the source of the erroneous £37,000.

Yes, that thought did cross my mind, but (for the other poster's benefit) the fact remains that you have a PSA of £1K with total taxable income of up to £50,270, even though some or all of that income falls within the £12,570 personal tax allowance.

21lex

I have been in discussion with HMRC over their estimated figures for my Bank & Building Society Interest. They have included estimated figures from Accounts which I closed up to  4 years ago , over the last three Tax Years! Ask for a written list of their Bank & Building Society Interest calculations.

RG2015

21lex said:

I have been in discussion with HMRC over their estimated figures for my Bank & Building Society Interest. They have included estimated figures from Accounts which I closed up to  4 years ago , over the last three Tax Years! Ask for a written list of their Bank & Building Society Interest calculations.

4 years seems excessive, but let's see how this may have happened.

Let's assume they haven't finalised 24/25 so their latest actual will be 23/24.

So 23/24 may include accounts closed in early April 2023. HMRC will still be using these for the 25/26 estimate used for the PAYE tax code.

When HMRC receive the 24/25 figures the closed accounts should be reporting zero interest. This may not be until early 2026. So from April 2023 to March 2026

Hence 3 years would just about be the extent of life in a closed account according to HMRC. 

However, I see that you are including the last 3 tax years, so 4 years is not in fact that excessive, for HMRC that is.

eskbanker

21lex said:

I have been in discussion with HMRC over their estimated figures for my Bank & Building Society Interest. They have included estimated figures from Accounts which I closed up to  4 years ago , over the last three Tax Years! Ask for a written list of their Bank & Building Society Interest calculations.

Any account closed during 2021/22 obviously shouldn't have been included in your actual tax calculation for 2022/23, even if the interest was used as a provisional estimate for PAYE coding purposes during that year.  That calculation should have been sent to you in late 2023, which would have given you the opportunity to validate it?