HMRC is sending letters to individuals containing new tax codes – with more money being taken back from their wages. Though just how much depends on your income.
The new tax year may be nearly halfway through, but HMRC is still issuing new tax codes as it adjusts to changes in personal circumstances related 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 out 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 saver, caught up in the HMRC tax code changes, took to the UK Personal Finance sub-Reddit to seek clarification. The Reddit poster asked: “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.”
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Another 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 within an ISA.
The amount of savings interest you can earn depends on your income. For those earning between £17,570 and £50,270, you can earn up to £1,000 of savings interest in a single tax year without owing tax.
Those raking in £50,270 or more can only earn £500 of savings interest, with tax due on anything above that amount, while those earning £125,000 or more cannot earn any savings interest without tax on it, reports the Express.
Charity Tax Aid has highlighted that HMRC can also update your tax code later on in the year, as well as at the start of a new tax year. They stated: “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.”