Will HMRC demand more tax on savings?

Will HMRC demand more tax on savings?

​According to recent media reports, the government is taking draconian steps to collect extra tax from your savings income. If this is correct, how might it affect you?

​More tax for savers? One of the many rumours currently circulating in the press is that the tax on bank, building society, etc. interest is set to increase in April 2023. We can categorically say that no such increase is on the cards, at least for now.

​Administrative change? The dodgy media reports were triggered by a government policy paper about widening the scope of information that businesses, banks etc. have to report to HMRC, including interest and investment income. Contrary to what the media stories suggest, there will be no new requirement for banks etc. to tell HMRC about interest you’ve earned on your savings. The truth is that this type of reporting has been happening for decades.

​Targeted reporting. The only significant change is that unless they already have the information, banks etc. will ask you to provide your NI number if you open or already have a savings account with them. They will then provide your NI number to HMRC from April 2024 when they report details of interest paid to you. This will allow HMRC to tie the figures to your tax records, and if you complete a self-assessment or Making Tax Digital for Income Tax (MTD IT) return, include it in your tax calculation.

​Lost tax. HMRC’s research and anecdotal reports we’ve seen suggest that currently many individuals fail to report the interest they receive to HMRC. The good news is that if the total interest from all banks etc. you receive in a tax year is less the “savings allowance” (£1,000 for basic rate taxpayers, £500 for higher rate taxpayers, nothing for additional rate taxpayers) you don’t have to declare it to HMRC unless you’re already required to submit a tax return or MTD IT report.

Tip. If you have overlooked declaring interest where it exceeded the savings allowance, don’t wait for HMRC to come to you as this can result in higher penalties. It’s generally to your benefit to own up voluntarily as soon as is reasonably possible.

​There’s no plan to increase tax on savings interest. HMRC is working with banks etc. to identify those not declaring such income. If you’ve overlooked declaring interest, use HMRC’s disclosure service to report it now.