HMRC confirms how they will calculate tax liabilities
Since April 2016 interest earned on bank and building society accounts has been paid gross with a tax-free allowance of £1,000 (for standard rate tax payers) or £500 (for higher rate tax payers). Any bank or building society interest over and above these levels is taxable at the relevant rate. For any bank interest received during 2016/17, tax is either being collected via a self-assessment tax return (with the tax being paid as part of the normal tax payments in January and July) or by issuing an amended tax code (where possible) to collect the liability through employment or pension income during the current 2017/18 tax year.
HMRC have issued some guidance to professional bodies to confirm how they will calculate tax on bank interest for the 2017/18 tax year for those individuals who do not need to complete a self-assessment return. It is important to note that this is applicable to single accounts only. Tax payers who are in Self Assessment (SA) are not affected and should report their interest in the normal way.
HMRC have explained that they will use 2016-17 savings interest data received from banks and building societies to populate interest for the 2016-17 tax year and estimate interest in the 2017-18 tax year. This process forms a part of the new dynamic coding system that has been introduced which ensures that as much tax as possible is collected in the current tax year rather than in a subsequent year. As a result, some non self-assessment tax payers could find themselves paying tax on two years' interest in the current year.
Earlier this year HMRC contacted customers affected by these changes to explain how the new system will work. Following rigorous testing they have now confirmed that the system will go live. HMRC anticipate the first calculations and tax codes will be received by customers towards the end of this week, with numbers increasing from week commencing 4th December.
At present there seems to be no link to any relevant information on gov.uk and as soon as ICB receives some updated information we will publicise this.
Head of Technical Policy, ICB