HMR deducted 2025-2026 over £700 for interest savings I never earnt!

noideapleasehelp

Hi Lovely people who know more than me!

I'm working full-time and looking at my payslips. Trying to plan my retirement.

I only work for one employer. Have no other income and 4 tiny savings accounts paying less than £28 per year.

Discovered that as of last December (2025-2026 tax year), HMRC changed my tax code and have been deducting money at source from my full-time employer based on what they say is "interest earnt".

I went on the Gateway, got all evidence, and it seems that the HMRC calculation is based on what is fed into their system from banks and other agencies and although they may submit the corret information (i.e. I earnt £28.03 in tax year 2025-2026 in interest for savings accounts), the HMRC algorithm doesn't take into account interest payment allowance and just takes the figures from the banks, and then assumes that is correct, and deducts payments automatically without question and changed my Tax code wrongly. I spent over 40 mins waiting for my call to be answered.

When it was answered, I was left even more confused by the person who talked very quickly, talked down to me, and basically said "You don't understand how HMRC works. Because 2025-2026 hasn't been updated yet and what I was seeing - was in my imagination because their figures at this point in HMRC only relate to 2024-2025. When I explained that on the Govt Gateway the figure I saw for 2024-2025 was 0 because I didn't have any savings account, I was told that I was "misunderstanding how HMRC works". And whilst I said - I understand that HMRC believe I owe you tax for interest, from my perspective I do not, and I want to know how to get HMRC to change my tax code so that you stop taking money from me at source from my pay. And I asked how they calculate interest against PAYE tax - and each time was told "you fail to understand how our system works". And I replied, whilst I appreiate your system works differently I just want to get my money back from HRMC and I want my tax code reinstated so that I get the full personal allowance!

Again I was told by the person on the call, "you don't understand how we work I'm telling you about 2024-2025 tax year and why you are now having deductions. I and I said but I've told you I'm only interested in 2025-2026 because I never had to pay interest in 2024-2025 because I had no savings accounts. And I want to claim back the money you have taken from me in 2025-2026 by my personal allowance and you have already done that again for my personal allowance 2026-2027 although I don't earn interest on my savings accounts!

If I could have done a screen share safetly I would have done because I was so angry at this person's attitutude to me, and despite my explaining over and over that I wanted to know how to get a refund of the money that HRMC have taken in advance for the tax year 2025-2026, I was constantly told, that HMRC do not yet have any information on interest paid and are waiting for "updates" so have decided to take money away via tax codes in advance even if money is not owed.

I spoke to people at work, and they didn't know this was happening to them - but this seems to be a wide spread thing that the HMRC algorithm is doing.

Anyone else on this forum struggling with this?

I'm LPA for my Mum — in care home with dementia — and then checked her main account and discovered that HMRC took away with no notice all of her private pension money from her pension provider. They didn't send me a letter - they just literally took all her private pension away and left her with 10 pence in her account!

What's going on with HRMC — have they got some stupid alogirthm in place or have they got AI that hasn't got a clue?

Either way, what's annoying is they taking money away from us, take months to repay and we never get interest on that money.

Apologies for ranting — but yup anooyed!

DRS1

I hope you feel better now you have that off your chest.

What you describe for your mother's pension doesn't seem possible. The most they can deduct under PAYE is 50%.

Also the person telling you they haven't got all the information about your interest for 25/6 yet is telling you the truth. They may not have that information sorted out until the autumn. If you look on your personal tax account there should be something explaining how your tax code is worked out - it may be they are collecting tax due for previous tax years.

If the tax is being deducted for interest then you can ask them for a breakdown of the interest they think you have received for the relevant tax year and check it against your records. I have in the past had long conversations with people at HMRC correcting their record of the interest I received. It is a frustrating exercise but they are usually quite good about it.

sheslookinhot

https://forums.moneysavingexpert.com/discussion/comment/82084236#Comment_82084236

Well done in reading that to the end.

GrubbyGirl_2

As DRS1 said, if you ask for a breakdown of interest you will be able to see where it's gone wrong. I also find it easy to correct with them, all you need is the account numbers and amounts of interest earned. I always ring them when I have my final interest statements and give them the accurate amounts (which is what the banks will give them by the autumn). If I know that the current years interest is going to be the same or more or less I ask them to roll those figures over and that results in a change of tax code.

It sounds like they may be rolling over an account or accounts that have closed but as neither you or the the bank has told them they are closed they know no better. If that's a possibility you will also need those account numbers and the dates when you closed them. There is always a significant lag so this years tax code is in fact taking the info from 2024/25 and before if you haven't corrected the info.

Just because you don't understand doesn't mean you're right and they are wrong or vice versa, but having a rant won't solve your problem. Gather all your info and call them back and start again, calmly

saajan_12

You're getting frustrated with how they work but you're not going to change that, and its stopping the conversation getting to the actual source of the incorrect information. They can't / won't just cherry pick your latest accounts manually and update outside the usual process. Instead, they predict off the prior data they do have, until they get a full batch of the updated data.

I fyou've never had high savings interest, then I'd focus on where they are gettign the incorrect info from, rather than which year its based on. Also I think we've had queries here before where it appeared to be coming from savings interest but was actually something else. Maybe share a screenshot of what you're seeing on Gateway and we can suggest further.

sheramber

https://forums.moneysavingexpert.com/discussion/6677873/hmr-deducted-2025-2026-over-700-for-interest-savings-i-never-earnt

How do you know that HMRC are responsible for the missing pension money?

Have you checked with her pension provider?

Albermarle

By the way, if you phone them at 08.00 sharp, you get through quicker. During the day you were quite lucky to get a response in 40 minutes.

As others have said it seems likely that HMRC have received some wrong info for tax year 24/25, which is now having an effect this tax year.

The issue with your Mother's pension seems very odd, you need to give more detail.

noideapleasehelp

Thank you lovely forumites for your replies and sticking with me despite my rant for which my apologies!!

Yes Albermarle, being quick on the phone at 08:00 sharp, does work!

I'm writing to HMRC with all my evidence as I've got info from bank on 24/25 and 25/26 interest earnt which is within the limits of interest allowed in any one year. For 26/27 the HMRC person said they are "predicting" my interest income, and have changed my tax code (again), and deducted already from my PAYE, which was why I was wondering if there is some kind of algorithm on their system that's not quite calculating things correctly. I got info from the government gateway on what exactly they have their end each tax year and, it's not correct, their system seems to have rolled-up 2024/2025 and 2025/2026, and then made assumptions on possible future interest for 2026/2027 and changed my tax code and taken money away since last December 2025. There is no recognition on their system to say "she's earnt interest … but interest earned is within the interest allowance on savings which is less than what we've got recorded so we won't change her tax code and take money away from her via her employer using PAYE.

Regarding Mum's pension, I did contact the pension provider immediately her payments were reduced and they said it was HMRC who had told them to reduce her payments because of unpaid interest and that they couldn't do anything. No letters received in advance etc from HMRC to notify they would be doing this or why. Contacted HMRC by phone (waiting time of over 50 minutes!), who said they'd got records from Mum's bank showing interest earnt in a previous year, and that's why they took money from her pension. When I asked did their process take account of the fact that Mum's interest earnt was within the limits as having a low income etc (based on info from Martin Lewis website on this)? Was told their system doesn't "do that", and they just take the interest away based on info from the banks. With experience I've had recently of my own issue, this is why I'm wondering if there is an issue with how HMRC process is working and doing this?

I wrote on Mum's behalf to HRMC with all info (excel spreadsheet, info from banks etc which took awhile to collate - needed internet access etc), and her full pension was reinstated, and they refunded the money they had taken. It took me hours to research, get letter done, use my scanner, print stuff out on my little printer, go to post office and send.

To be honest, I wonder how many other elderly people who like my Mum are not linked to the internet or understand any of this "online banking stuff", or people like me who don't regularly check their payslips are caught-out by this?

My Mum is 89, and, if I hadn't got LPA and checking her bank stuff, she would not have queried it, been aware of it, or understood any of it if she'd looked at her bank statement and realised she wasn't receiving her full private pension. At the age she is, she would have just found it too confusing to understand or how to sort out, and just left it. Even if she had twigged that the issue was with HMRC, at her age, the frustration of waiting 40 minutes for her call to be answered, she'd have given up long before her call was answered thinking there was something "wrong" with what buttons she had to press to get through to the right department. And, if encountering the person I did at HMRC who talked so quickly, I had to ask them to slow down and take into account I am old and can't process things as quickly as they do, I do wonder how many elderly people who aren't savvy about these things are being caught-out. And, I wonder if there's something HMRC should be doing with their process to ensure that people like my Mum are not caught out by this.

My Mum is lucky, she has me doing the stuff for her, but I do wonder, since I have no dependents or family, when I get to her age, I won't be able to argue any of this stuff when I'm 89 so making sure HMRC have appropriate systems in place such that it isn't reliant on people to respond to them when they've made a mistake and to change their systems to ensure that elderly people aren't disadvantaged is perhaps a thing?

Again my grateful thanks to you all and I've taken your advice. And I will report back with the outcome!

GrubbyGirl_2

Writing to them won't solve your problem I'm afraid, you are unlikely to get a reply at all or if you do you'll wait a long time for it (many months). Give them a ring this morning and ask them for the exact details they are using to calculate your interest for each year you are concerned about and what accounts. It might be worth you asking for them in writing so you have time to compare their info with yours. Then you can call them back and correct it.

Remember your concerned about the 2025/26 tax code is using interest from 2023/24 (not 2025/26). The fact you only earned £28 in 2025/26 wont be relevant until 2027/28 and £700 deducted from your code means you owe £120. Another thing to consider is do you get any benefits from your employer like private health insurance, company car etc that might be impacting your code?

DRS1

I have a thought on the doubling up of interest point. Have you been closing savings accounts and opening up new ones?

When the banks report interest they usually give the account numbers. HMRC use those numbers to update their figures. So if you have interest on account 123 in 23/4 and different interest on account 123 in 24/5 the new figure replaces the old figure.

But if you have interest on account 123 in 23/4 then close it and open up account 456 and have interest on that in 24/5 HMRC will log the interest on account 456 in 24/5 and carry over the interest on account 123 for 23/4 into 24/5 as well if the bank has not reported any interest on account 123 for 24/5. They do at least highlight that these figures are carry overs so they should get checked somehow.

Part of one of my long conversations with HMRC about interest was along the lines of "No I closed that account on whenever it was."

eskbanker

OP - as you apparently have access to the online personal tax portal (via Government Gateway), you can use this to correct the HMRC forecast for your savings interest earnings for 2026/27, via a misleadingly-labelled 'add missing investment income' page. They may ask you to substantiate any figures you supply though, but should reset your 2026/27 tax code based on your submission.

Your actual tax liability for 2025/26 is a different story, and they won't accept a similar unilateral declaration from you at this stage and will instead wait until they've received and processed the annual reports submitted by the banks and building societies. Once they've done this, they'll write to you with your 2025/26 tax assessment, usually in the autumn, and at that stage, if any figures are incorrect, you can challenge them accordingly. If it turns out that more tax was deducted via PAYE than should have been, you'll get it refunded at that stage.

This is the process that they'll have followed last year (for data received relating to 2024/25), which led to your 2025/26 tax code being adjusted mid-year - the calculation of that adjustment will have been included in a coding notice that should still be visible in your online account.