The new tax year may be coming up to halfway through already, but HMRC is still sending out new tax codes as it adjusts to changes in personal circumstances linked to your National Insurance number or interest earned from your savings account.
The new tax year began on April 6, and each year, when the fiscal year resets, HMRC sends new tax codes to individuals who have exceeded certain thresholds, such as the Personal Allowance for savings interest or one of the income tax brackets, like the £50,270 band. One individual, puzzled by the changes in their tax code, took to the UK Personal Finance sub-Reddit to seek clarification.
They queried: “Why has my tax code changed from 1250L to 115L? My tax code is currently 1250L however in the new tax year it’s going to be 1151L – the HMRC app says I have a deduction of £1,060 on my tax-free allowance, but I don’t understand why as I’ve been in the same job for years and my pay hasn’t changed since April.”
One user, u/bluebells7788, shed light on the situation, explaining: “They’re doing this to everyone who has savings. Your bank has reported that you have savings and they have calculated based on the interest reported a deduction in your personal allowance.”
Indeed, HMRC does adjust tax codes for savings interest among other reasons at this time of year, and your bank automatically reports your savings interest to HMRC if it’s not inside an ISA, reports the Express.
The sum you’re permitted to earn in savings interest hinges on your earnings.
For individuals bringing in between £17,570 and £50,270, you’re able to pocket £1,000 of savings interest within a single tax year without facing any tax liability.
Those pulling in £50,270 or above are restricted to just £500 of savings interest, with tax due on any sum beyond that threshold, whilst individuals earning £125,000 or more face tax on all savings interest without exception.
According to charity Tax Aid, HMRC may also revise your tax code during the year, not just at the beginning of a fresh tax year. They explained: “Please also note that in addition to sending a tax code for the beginning of the tax year, HMRC may update your tax code part way through the year if they are informed of a change in your circumstances.”
HMRC explains: “If you go over your allowance, you pay tax on any interest over your allowance at your usual rate of Income Tax.
“If you’re employed or get a pension, HMRC will change your tax code so you pay the tax automatically. To decide your tax code, HMRC will estimate how much interest you’ll get in the current year by looking at how much you got the previous year.
“HMRC will send a tax calculation letter and tell you if you have a tax overpayment or underpayment.
“Your bank or building society will tell HMRC how much interest you received at the end of the year. HMRC will tell you if you need to pay tax and how to pay it.”
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