But for the PAYE majority of us HMRC already know how much we earn and how much tax is due. If the banks pass on interest earned information then HMRC can simply add that to taxable income. No need for the individual to declare it.
Ah, well it’s a national honesty test! 
I thought you were suggesting that the bank would pay net of tax. Obviously HMRC would be in a better position.
But even so I think for a significant proportion of those who have investment income above the tax free limit, it’s quite complex to work out exactly what tax is due and HMRC want to be in the place where it’s the taxpayer’s responsibility to pay the right tax and not HMRC’s to know all without being told by the tax payer.
Ah-ha – but if you read my post(s) above, the HMRC appear to have gaps in their data collection around interest and dividends, such that a taxpayer needs to update this with them.
The issue is, that in some circumstances, this isn’t easy (at least not in my case) and, as HH alludes, it can cause material issues for the taxpayer where their year-on-year ‘untaxed incomes’ aren’t the same e.g. HMRC then react by coding out the following year (via the PAYE system), when you may not receive the same level of interest/DVs (of course, the opposite could be true).
The banks certainly do grass to HMRC about any interest earned.
As per Gadgetman’s post way up the list here, how that tax is paid depends on your circumstances.
Given that this is likely to be the first time lots of people have had sufficient gross interest paid to cross various thresholds and thereby should be paying income tax, I await the slew of media articles along the lines of “I earned lots of money on my savings and didn’t know I had to pay tax on it and now HMRC have cut my tax code/sent me a demand for money and/or told me I have now fill in lots of forms. I can’t now afford to pay my gas bill. The B’stards…”
Should keep Watchdog, the Consumers Association, Martin Lewis and the complaints lines at HMRC busy for a few weeks at least…
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The entity reporting threshold used to be £150 p.a. (as far back as the 1980s IIRC) and, I suspect, with the growth in computers and data reporting, that’s not been amended.
Maybe, however the last time interest rates were high enough to notice you were earning any, it was still paid net of brt (which changed in 2016).
I suspect lots of people will now plead ignorance.
The nasty dynamic, which you may see in your day to days (?), is that HMRC will attempt to code-out the same recovery in the following year(s), which, in some cases, could severely impact monthly incomes which are subject to PAYE and HMRC’s practice of issuing revised codings on the fly.
For simplicity’s sake, I want to do SA on a PAYG basis (with no revised codings) – whether HMRC’s new ways of working allow this remains to be seen.
Correct they do
I did try a bit of research a while back to ascertain how much the tax take for the Treasury will be on UK savings this tax year but couldn’t see anything useful. I suspect no-one’s talking!
However, it may be quite a useable amount for the Chancellor(s) over the next couple of years I think.
If they need to make an assumption then yes they will assume the figures from the last year. Unless you tell them different.
One way or another, a lot more people are going to be filling out a lot more forms. I do hope that HMRC have recruited enough people to read them. And who can read.
I certainly would not rely on this. If you complete a return then you are obliged to report interest earned outside of a tax free wrapper. If you don’t then they can elicit a fine and outrageous interest as well….
If you don’t do a return and you pop up on a routine check the above sanctions also apply
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As above, I expect this one to run and run…Coming to a breakfast telly shock jock report, repeated ad infinitum, any time soon.
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…and therein lies the rub! As I understand the basics of HMRC’s systems & approach, anyone with ‘untaxed’ interest and DVs > allowable limits, will be sent a tax bill/updated statement by end November following TYE, with instructions as to what to do.
It’ll be interesting to see how this all develops. The cynic in me suggests HMRC planned all this when these additional incomes for many were modest and within ‘allowances’ (?).
Let’s just say that given the rise in rates and the decrease in the interest and dividend allowances the treasury will be absolutely raking it in. The people I feel for are small income pensioners who haven’t had to file in the past and could end up with worrying correspondence from HMRC as a result.
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Indeed – and if HMRC adopt the approach of ‘coding out’, they could see their pensions/PAYE-ed incomes markedly reduced.
My aged aunt (81) has had to do a SA return for many years, as she has various lines of income (primarily pensions from late hubby/her own pensions/state et al) and she’s completely befuddled by coding-out et al. Plenty of her friends have never done a return, which pees her off greatly.
This has been my plan/intention/wishful thinking too… to remain on SAs and paying in arrears, after any savings/investment income has become realised (as I expect it to be inconsistent in the future). Although my working life is now winding down, I’m not ready to give up the possibility of taking on work commissions and hope to keep my self-employed status alive for a bit longer (and thus remain on the same tax regime).
The ‘coding-out’ business (next year’s tax based on assumption that income will be same as last year’s) is not so different in concept to the self-employed being taxed, in part, based on HMRC’s prediction of what one’s income will be in the year ahead.
That hadn’t occurred to me - it could, indeed, cause a deal of distress for some people.
It meant that people, including myself, no longer needed to fill out a tax return, which must have lead to savings at HMRC. I was very appreciative of the change.
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Thanks for your contributions - very useful.
I’ll do as I intended - wait until I have the year-end statements then declare the taxable interest. At least that way I can firmly call them to account if the re-coding is wrong. HMRC have messed up with my tax in the past, but it’s only taken a single phone call to sort it - probably because I wasn’t giving them any reason to suspect dishonesty.