HMRC regularly receives data on interest payments made by banks and building societies. In the past it has used this information to check that taxpayers were reporting the correct amounts on their tax returns.
From November 2017 HMRC has been inserting the actual amounts of interest paid into taxpayers’ PAYE computations (form P800), and simple assessments (form PA302), for 2016/17. It is also using the 2016/17 interest data as a proxy for the interest expected to be received in 2017/18, and is amending 2017/18 PAYE codes (forms P2) accordingly.
This change should only affect taxpayers who have savings income which exceeds their personal saving allowance, and who are not already submitting a self-assessment tax return. Around 95% of taxpayers will have their savings income covered by their savings allowance of £500 or £1000, or their saving rate band of £5000, and hence have no tax to pay on that income.
If you have a significant amount of savings income, we will need to check your PAYE code and/or P800 very carefully. HMRC should not use interest paid into joint accounts to populate the PAYE code, but the fact that the account is jointly held may not have been accurately reported by the bank.
Interest from non-bank sources such as unit trusts, investment funds or corporate bonds, will not be used by HMRC to populate PAYE codes, as it is reported in a different fashion. Those interest payments may have tax deducted at source, for example where the payer is not a company quoted on the stock market.
Written by the Tax Advice Network