Savers: Act now over tax due on interest

Thousands of savers who owe tax on their savings interest should contact HMRC if they have not received a letter from the tax office, to avoid the risk of fines, the Association of Taxation Technicians has warned.

With savings rates increasing over the past three years, many more people have found themselves exceeding the Personal Savings Allowance. Recent estimates show that an additional 893,000 taxpayers will have to pay tax on their savings by 2028 to 2029 due to frozen personal savings allowances and higher interest rates.

HMRC had told taxpayers it would use information received directly from banks and building societies to calculate any tax due on savings interest, and then issue either a Simple Assessment, or adjust the individual’s tax code, preventing thousands of people needing to fill out tax returns.

However, it has now acknowledged that around a fifth of all bank accounts cannot be matched to a taxpayer record, and the responsibility for paying any tax owed remains with the individual. Those who were not contacted by HMRC by 31 March must now get in touch as soon as possible to avoid late filing fines.

Senga Prior, ATT President, said:

“Strictly speaking, if an individual has interest which needs to be taxed they are required to register with HMRC within six months of the end of the tax year - unless HMRC sends them a tax computation.

“There are two problems with this - firstly there have been so many computations needed for 2023/24, that HMRC has only now finished issuing them, around five months after the registration deadline.

“Secondly, HMRC’s matching process is not perfect. They receive information from around 130m accounts and they have recently confirmed that they are unable to match around 1 in 5 bank accounts to their taxpayer records, which means approximately 20% of accounts are being missed.  

“We raised concerns last year that, given these issues with the matching process, HMRC’s guidance to savers not already in self-assessment to simply leave it to them was not adequate. In December, HMRC updated their guidance to confirm that taxpayers who do not receive a letter by 31 March 2025, must contact HMRC as soon as possible to avoid a penalty.

“HMRC is making it clear that responsibility passes back to the individual to get in touch to pay tax, so we urge anyone who thinks they may owe tax on their savings interest to contact HMRC as soon as they can.”