HM Revenue and Customs (HMRC) has provided a crucial update following a query from a state pensioner regarding potential tax 'discrepancies' on their savings interest. The individual contacted the tax authority, now under the Labour Party government, seeking clarity on why their reported untaxed interest earnings seemed incorrect.
Pensioner's plea highlights wider confusion
The pensioner explained to HMRC that they were "not someone who can afford an accountant" and urged the department to point them in the right direction to resolve the matter. This case underscores the challenges many face in navigating the tax system without professional help.
In response, HMRC asked the individual to clarify whether they needed to officially inform the tax department about the bank interest they had received. The pensioner believed the figures held by HMRC were an overestimate, prompting the need for correction.
How to contact HMRC and understand your allowance
HMRC advised the taxpayer: "You can either write to us or call an adviser to inform about the interest. Our phone lines open at 8am until 6pm Monday to Friday, and are usually less busy between 8am and 9am." This guidance is vital for anyone needing to correct their tax details.
The core of the issue often relates to the Personal Savings Allowance (PSA). This is the yearly amount of interest you can earn across your savings without paying tax, and it varies based on your income tax band.
What are the Personal Savings Allowance rates?
The allowance applies to all savings interest earned between 6th April and 5th April the following year. The tax-free amounts are:
- Basic rate taxpayers: Can earn up to £1,000 in interest tax-free.
- Higher rate taxpayers: Have a £500 tax-free allowance.
- Additional rate taxpayers: Receive no tax-free allowance and pay tax on all interest earnings.
There is also a starter rate for savings, which applies once your income moves above the personal allowance of £12,570. You can earn up to £5,000 in interest under this rate, but it reduces by £1 for every £1 your income exceeds the personal allowance. This starter rate is lost entirely once your income reaches £17,570 or more.
The Personal Savings Allowance is set by the UK government and applies to interest from all savings accounts, regardless of the provider. Understanding these rules is key to avoiding discrepancies and ensuring you are not overpaying tax on your hard-earned savings interest.
