PAYING TAX ON SAVINGS INTEREST AND FAQS

ASESA Solutions Ltd - PAYING TAX ON SAVINGS INTEREST AND FAQS

In our previous newsletter, we introduced the concept of Simple Assessment and explained why figures may differ when it comes to tax on savings interest. This edition takes a closer look at how HMRC collects tax via Simple Assessment, key client reminders, and answers some common questions to help you navigate the process with confidence.

WHEN DID HMRC INTRODUCE SIMPLE ASSESSMENT?

• The Simple Assessment system was introduced by HMRC in 2017, originally used in limited cases, such as:

  • Collecting underpaid tax that could not be adjusted through PAYE, or

  • Taxing the State Pension when it exceeds the Personal Allowance.

    
    

•  HMRC will now use Simple Assessment to collect tax on savings interest automatically.

  • Previously, clients who owed tax on interest often had to file a Self-Assessment return.

  • Now, HMRC issues a Simple Assessment letter instead, showing the total tax due.

  
  

PAYING TAX VIA SIMPLE ASSESSMENT

• The letter shows total tax due, including any previously reported amounts.

• How tax is collected:

  • Smaller amounts may be collected through your tax code (PAYE).

  • Larger amounts or interest not included in PAYE will appear in a Simple Assessment letter, which is paid directly to HMRC.

  • Payment deadline: 31 January after the tax year ends or Always refer to the letter for the specific date HMRC sets for that assessment.

    
    

KEY CLIENT REMINDERS

• HMRC may issue a second Simple Assessment if new interest information arrives.

• You can use HMRC’s online calculators to check estimated tax on savings interest.

• If the letter appears incorrect, contact HMRC within 60 days.

• Those filing Self-Assessment declare all income themselves, so they do not receive a separate Simple Assessment.

  
  

COMMON CLIENT QUESTIONS (SHORT FAQs)

Q1. Does the letter show only interest tax?

• No, it shows total tax due, including wages, pensions, and savings interest.

Q2. Is Personal Savings Allowance the same as an ISA?

• No. PSA allows tax-free interest on ordinary accounts. ISA interest is always tax-free.

Q3. Why do most people pay no tax on small interest?

• Because the Personal Allowance and PSA usually cover modest savings income.

Q4. What if I think HMRC’s figures are wrong?

• Contact HMRC within 60 days of the letter date to dispute the assessment.