Pictured: Helen Draper MMath(Hons) FCA
With interest rates having risen significantly in recent years, many individuals are now earning savings income that exceeds their Personal Savings Allowance (PSA). If this applies to you – and your personal allowance is fully allocated against other income – it is important to be aware that the responsibility to report and pay any tax due lies with you. Do not assume that HM Revenue & Customs (HMRC) will automatically notify you or that their calculations will be accurate.
Now that the tax year ending 5 April 2025 has passed, this is an ideal time to review the total interest earned across your bank accounts, building society savings, and other investments for 2024/25. Interest from ISAs can be excluded as it remains tax-free. The PSA is set at £1,000 for basic rate taxpayers, £500 for higher rate taxpayers, and nil for additional rate taxpayers. Any interest earned above these thresholds may give rise to a tax liability.
HMRC receives some data directly from financial institutions and may use this information to issue a Simple Assessment or tax calculation, or adjust your PAYE tax code accordingly to collect any tax due. However, this process is not always accurate or comprehensive. In fact, HMRC has recently confirmed that around 20% of bank accounts cannot currently be matched to a taxpayer record. As such, it is essential that individuals take steps to verify their position and not rely solely on HMRC’s systems.
We strongly recommend reviewing all interest received during the 2024/25 tax year as soon as possible. It is also prudent to check your position for earlier years. In some cases, HMRC may not have included interest correctly in your tax code or may not have accounted for it at all. If underpaid tax remains outstanding for previous years, interest will accrue, and you may be liable for late filing penalties too.
In addition, please note that the dividend allowance was reduced to £500 for the year ended 5 April 2025. Any dividends received above this threshold may also be subject to tax and may need to be reported to HMRC.
If you believe you may have a liability, or would like support in reviewing your position, we are here to help. We can calculate the amounts due and liaise with HMRC on your behalf, helping to minimise the administrative burden.
The above is for general guidance only and no action should be taken without obtaining specific advice.
If you are looking to trim your tax, it pays to get professional advice.
Pearson May specialise in a full range of accountancy services to help you maximise your profits and minimise the tax you have to pay.
Call Bath: 01225460491
Pearson May Chartered Accountants & Chartered Tax Advisers
Bath, Trowbridge and Chippenham
pearsonmay.co.uk
