HMRC is changing tax codes this March for people with savings (Image: Getty)
There are just weeks to go until a new tax year begins and with it will take the opportunity to adjust the tax codes of thousands, possibly millions, of workers.
The new tax year begins on April 6, and is set to send new tax codes out to people who have exceeded certain thresholds, such as the Personal Allowance for savings interest. One person who had been caught up by tax code changes posted in the UK Personal Finance sub- to ask about the issue.
They said: “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 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 solved the mystery as they said: “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, does adjust tax codes for savings interest at this time of year.
The amount you can earn in savings interest depends on your income. For someone earning between £17,570 and £50,270, you can earn £1,000 of savings interest in a single tax year without owing tax.
This could mean £20,000 of savings at 5% for a year. But you could still go over the threshold with less than £20,000 – for example if you had £10,000 in a three-year fix and the fix ended, the interest would all be paid out in one lump sum in the same tax year, about £1,500, so you would owe tax on £500 of that.
Those earning between £12,570 and £17,570 could qualify for what’s known as Starting Rate for Savings, meaning they could earn up to £5,000 of interest tax-free.
Those earning £50,270 or more can only earn £500 of savings interest, owing tax on anything above that amount, while those earning £125,000 or more cannot earn any savings interest without tax on it.
says: “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, will change your tax code so you pay the tax automatically. To decide your tax code, will estimate how much interest you’ll get in the current year by looking at how much you got the previous year.
“ will send a tax calculation letter and tell you if you have a tax overpayment or underpayment.
“Your bank or building society will tell how much interest you received at the end of the year. will tell you if you need to pay tax and how to pay it.
“If you do not receive a letter by 31 March 2025, you must as soon as possible to avoid a penalty.”