UK households are being urged to act promptly to avoid unexpected penalties on their savings income. Recent developments have highlighted the growing complexity around how tax on savings is calculated and experts are calling on HMRC to provide clearer guidance.
At Accounting People, we want to ensure you stay informed and ahead of any changes that could impact on your finances. Here’s what you need to know.
Why More People Are Now Paying Savings Tax in the UK
Interest earned on savings, such as those from bank accounts, building societies, or investment platforms, is taxable. While many savers have previously been below the threshold, changes in personal allowances and rising interest rates mean that more people than ever are now liable to pay tax on their savings income.
Investment platform AJ Bell predicts that the number of savers needing to pay tax on interest has jumped from 650,000 three years ago to over 2 million for the 2023/24 tax year, with projections suggesting a further surge of nearly 900,000 savers.
How HMRC Calculates Savings Tax UK Rules
For those who do not complete a self-assessment tax return, HMRC collects interest information directly from banks and financial institutions after the end of the tax year. This is then matched with PAYE information to calculate your tax liability automatically.
You may also get up to £1,000 of interest and not have to pay tax on it, depending on which Income Tax band you’re in. This is your Personal Savings Allowance.
To work out your tax band, add all the interest you’ve received to your other income.
| Income Tax band | Personal Savings Allowance |
| Basic rate | £1,000 |
| Higher rate | £500 |
| Additional rate | £0 |
For detailed information about the tax on savings interest.
Key Problems You Should Be Aware Of
- Delays in Issuing Tax Computations:
HMRC has only just finished issuing tax calculations for the 2023/24 tax year, several months after the registration deadline. - Issues with Data Matching:
HMRC recently admitted that it is unable to accurately match around one in five bank accounts to taxpayer records. With data gathered from roughly 130 million accounts, this mismatch leaves thousands at risk of being missed or worse, incorrectly taxed. - Responsibility Falls on the Individual:
If HMRC does not send you a tax computation by 31 March 2025, it becomes your responsibility to contact HMRC. Failure to do so could result in fines and interest charges.
What You Need to Do
Senga Prior, President of the Association of Taxation Technicians (ATT), has warned that individuals must register with HMRC within six months of the end of the tax year if they owe tax on savings interest even if HMRC does not initially contact them.
Similarly, Helen Thornley from the ATT emphasised the need for clearer guidance from HMRC and stressed that individuals should be allowed to remain in, or voluntarily join, self-assessment if it helps them manage their affairs more effectively.
Our Advice:
If you have earned savings interest in the last tax year and are not already in self-assessment, do not wait for HMRC to contact you. Take proactive steps to check your position and seek expert advice if needed.
Need Help Sorting Your Savings Tax?
At Accounting People, we assist individuals and businesses in understanding their tax obligations, so you don’t get caught out by unclear rules or missed deadlines.
Contact us today for a free initial consultation, and let us help you stay compliant, avoid penalties, and manage your tax efficiently.