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As interest rates on savings accounts have gradually increased more people are likely to owe income tax on their savings.  Banks and building societies report how much interest you earn to HMRC and they have started issuing Simple Assessment letters (PA302) to those who they believe owe tax on this interest for 2024/25.

Self-Assessment and PAYE

These letters are usually issued to clients that are not part of Self-Assessment and those that do not have a PAYE code or where the tax due cannot be collected through PAYE.

You may have already received a Simple Assessment for the 24/25 tax year excluding savings interest in which case you could receive a second Simple Assessment letter to include this additional income.

The letter will include a note of how much tax you owe, why HMRC believe you owe tax, details of how to pay the tax and when it is due (usually 31 January).  If you do not agree with the Simple Assessment you have 60 days from the date of the letter to call or write to HMRC to formally dispute the assessment.

If you receive a Simple Assessment but are already registered for Self Assessment, you should call HMRC and request the Simple Assessment is withdrawn.

Is all my interest taxable?

Most people get a Personal Savings Allowance on which they can earn interest without having to pay tax (usually £1,000 per annum, depending on your tax band).  You can also utilise your Personal Allowance against the interest if you have an unused balance after taking into account wages, pension etc.

You may want to consider investing in an Individual Savings Account (ISA) which provide a tax-free way to save and invest.  There are many ISA’s available and you can deposit up to £20,000 per tax year.  Contact an Independent Financial Advisor for specific investment advice.

For more information please click here, or contact us.