HMRC has explained why the taxman is asking banks to disclose how much households have in savings. The tax department, under the Labour Party government, is requesting that banks hand over savings details.
New Rules to Reduce Data Mismatches
HMRC's director of strategy outlined how new regulations will lower the risk of data mismatches. Currently, HMRC does not require taxpayers to report savings interest; instead, it relies on information provided by banks and building societies.
HMRC annually receives over 100 million records of interest paid from approximately 300 financial institutions, as reported to The Telegraph. After receipt, HMRC matches this information with individual taxpayers' records.
Tax-Free Savings Allowances
You can use your Personal Allowance of £12,570 to earn tax-free interest if you haven't used it up on wages, pension, or other income. You may also receive up to £5,000 of interest without paying tax, known as the starting rate for savings. However, the more you earn from other income, the less your starting rate becomes.
Jonathan Athow, director of strategy and policy at HMRC, explained on LinkedIn: "HMRC is asking financial institutions to provide additional identifiers, such as National Insurance numbers. We also want to modernise how data is submitted and improve timeliness. These changes will improve matching rates and reduce the already small number of mismatches."
He added: "The second change is improving how HMRC communicates with taxpayers about savings income. This means more information included in tax calculations we provide to taxpayers. Specifically, more granular information on the interest received and details on how that data has been used in calculating tax. The aim is to give taxpayers greater confidence in the system and make it easier for them to check and understand their tax position."
