3

Like a lot of people in the UK fortunate enough to have savings, the higher interest rates mean that I will be getting more than the £1000 tax-free allowance on savings interest. Unlike a lot of people, I pay tax both via an office payroll system via PAYE and self-assessment on a small additional freelance income.

I have heard that those on PAYE will have the tax on savings deducted automatically, although I'm not entirely clear how HMRC knows what's in your savings accounts, and that those on self-assessment will need to declare it on their assessments. I don't particularly want to pay it twice so, in my position of being taxed via both methods, do I need to declare it or will it be deducted from my payroll automatically?

1 Answer 1

6

The self-assessment process can essentially be viewed as a correction to the PAYE process. When you self-assess, part of what you report is you all your income including your PAYE income, and the tax that was deducted through PAYE (these figures both come from your employment P60).

The self-assessment process calculates the total tax you actually owe on all your income - employment, savings, self-employment - and deducts the tax you've already paid through PAYE. The net amount is what you actually owe.

The statement that those on PAYE will have the tax deducted automatically essentially relates to HMRC finding out about the savings interest somehow - either you tell them or the bank does - and then adjusting your "tax code" so that more tax is deducted via PAYE. It's a bit of a hit and miss process in my experience.

So in summary you do need to declare your savings income in self-assessment, but you shouldn't get taxed twice on it. Maybe your tax code was adjusted so that you've already paid, or maybe you'll have to pay as part of the "balancing payment", but you won't be paying twice.

2
  • 1
    +1 Also I believe the answer to the question "how HMRC knows what's in your savings accounts" is that your bank (or whatever) reports how much interest it paid you if it's a UK bank. Nov 10, 2023 at 16:57
  • @DJClayworth yes, I think they do too, but I think it's also relatively slow which makes explaining how it affects your tax code a bit complicated. Nov 10, 2023 at 21:10

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .