Tax on interest question

KJT2007

Hello there, Hopefully this is the right place for this Qu, if not, sorry

Anyway, my question is about the deduction of tax on savings account interest.

My daughter has a part-time job whilst at college, and I understand that normally she is under the current limit and can be paid interest gross, not net. What she was wondering was if she worked extra hours, say in the holidays, she would then have to declare this, in case it takes her over the threshold? How would she know for sure (apart from getting her P60) And say she did this, so was registered for tax to be deducted, but the next year earned under the threshold, would she have to apply to have the tax refunded, as a rebate? Was just wondereing how this would work out?

Lokolo

Bit confusing what you wrote... but I am in a lazy mood today

She would need her P60, simple as. If I were her, I would declare that you don't pay tax, wait til the end of the tax year and sort it out then.

Usually it all balances it out, say, I earn £200 a month, but in summer months I earn £400. Now some of the £400 would be taxed, but even so, end of the year I wont be over my tax limit. Even though I have paid tax.

It compeltely depends on the annual income, so as long as she doesn't earn over £5225 (or whatever it is) during the year April - April don't worry about it, even if she does work overtiime in summer.

However, if she does you will need to fill in tax return form, maybe pay a little to Inland Revenue to clear all debts. They won't moan at you if you do it right, if you get to the end of the year, paid tax as she earnt say, £6000, but didn't declare she is paying interest to bank, and doesn't fill in tax return form, she may get a door knocking,

Hope this is clear..?

KJT2007

Thank you for your reply Lokolo, but can I just confirm:

The issue is what happens should she earn over the limit, in theory how would she know this? In practice she intends to work full time over the summer which is where this issue comes in. So should she contact the banks etc now, or can you wait until the tax period ends, which would be next year, and pay what is owed once you have your P60 and hence total income?

You mention a point which I was unaware of: she too gets taxed on her wage, but it is the issue of bank/ building society interest that I am getting at, which may not be as important as income tax but I assume still needs to be correct

Sorry if this is a bit confusing, I'm just as confused as she is really, would love this clarified

CLAPTON

If she has fillied in R85s i.e. is being paid gross interest on her savings then
if she actually has income (gross pay plus gross interest ) of more than 5225 this tax year then she needs to contact the HMRC and tell them. they will send her a form which she will need to fill in.
She is responsible for knowing her gross income (either adding up her payslip or checking her P45s or P60s ) and adding gross interest.


If she de-registered for gross tax but her income is less than her tax free personal allowance then at year end she will again need to contact the HMRC and she can reclaim the money.

Presumably she is make full use of her ISA allowance as these are paid tax free and dont need declaring to the HMRC

KJT2007

Thankyou for your replies. I think I understand now- I will tell my daughter to contact HMRC for the form, assuming that she will earn over the limit. Does she then need to contact the appropriate bank that she is a customer of, or would that be done automatically?

Mikeyorks

When she initially completed an R85 ... she signed an undertaking to advise the Bank etc in the event she was no longer entitled to gross interest. So, yes, she has to advise the R85 should be rescinded if her circumstances no longer meet the original declaration.

The R85 Helpsheet she also had ..... is worth a read?
http://www.hmrc.gov.uk/helpsheets/2007/r85-helpsheet.pdf