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HMRC are set to use bank and building society information – check it is correct!
HMRC are going to use information provided direct to them by your bank and building society about interest you receive to collect any tax due on that income. You need to check these figures carefully to make sure they are correct so that you don’t pay too much tax or end up owing tax.
Background information on how savings income is taxed
Since 6 April 2016, banks and building societies have paid interest to savers without taking any tax from it (they have paid it gross). Most people have a personal savings allowance of £1,000. Provided that the interest they receive in the tax year is less than that, they have no further tax to pay on the interest. Higher rate taxpayers have a reduced personal savings allowance of £500 while additional rate taxpayers have no such allowance. When deciding which personal savings allowance they might be entitled to, Scottish taxpayers need to use UK rates and bands rather than those for Scottish income tax (the Scottish rate of income tax for 2016/17).
How HMRC are going to use that information
HMRC will compare the figure(s) they receive from your bank or building society to your personal savings allowance. To the extent that HMRC’s figure exceeds your personal savings allowance, HMRC will include that figure in any calculation of your tax liability they issue (form P800). They will also use the same figure as an estimate of interest received in the current tax year, 2017/18, for the purposes of amending the tax code that your employer or pension payer uses against your employment or pensions income. A change in your tax code can affect the amount of your take-home pay.
What should you do?
Banks and building societies have advised HMRC of the interest they have paid savers on accounts in the name of one individual for the tax year 2016/17. This is the first point to note. Where an account is in joint names, HMRC will not have any information they can use. So if you have received interest on a joint account you need to make sure you include that in any relevant calculations and you may need to advise HMRC of this interest.
If the total interest you have received is higher than your personal savings allowance then you are likely to have tax to pay. You should check that HMRC have included all the relevant income and given you the appropriate personal savings allowance. You should note that you still need to include interest covered by your personal savings allowance when calculating your total taxable interest. If HMRC have included an incorrect figure in a P800, you should contact them without delay. There is more guidance on checking forms P800 in our guide to employment.
Similarly, if the estimated amount of interest included in a tax code for the current year (2017/18) is inaccurate you should contact HMRC as soon as possible.