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2016/17 Coding Notice & Personal Savings Allowance

2016/17 Coding Notice & Personal Savings Allowance

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I am assisting a neighbour with her Tax Coding for 2016/17.

She will have  the following income :~

State pension £9856, Private pension 1  £1500 (code BR), Private pension 2  £1890 (Code 18L)

Estimated Bank/BS Interest £3600

Coding (pension 2)  received shows :~

PA                                                11000

PSA                                                1000

Total                                             12000

Less State pension       9856    

     Untaxed Interest      1956

Net Tax free amount                188   (hence Code 18L)

We asked HMRC what was the basis of the Untaxed Interest calculation and their reply was:~

“The new PSA   ----  allows the 1st £1000 tax free there after you will be taxed at 20% on £2600. The amount of Tax due would be £520 this is rounded up to 100 percent figure of £1956 in order to collect the tax due. I have reviewed the coding for 2016/17 and on the information provided your tax code is correct”                 (this is exactly as they set it out ~ not my mis-type or omission of punctuation etc.)

I agree the calculation of the £520 but cannot understand the “rounded up” or the basis of the figure 1956! This code seems to me to leave an underpayment of £328.80 at the year end. Is it me? Am I having a bad Monday?

Your thoughts would be much appreciated.

Replies (5)

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By David42
04th Apr 2016 18:52

calculation of the untaxed interest

I checked mine and the untaxed interest is the gross interest on my tax return last submitted to HMRC - for the tax year 2014 /2015.

Presumably future codes will have to be adjusted for the actual interest coming through each year.

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By vince8
05th Apr 2016 00:02

Tax due

Based on those codes there will be an underpayment at the year end of £28.80.

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JCACE
By jcace
05th Apr 2016 01:25

Starting rate + PSA

HMRC don't appear to have taken the starting rate for savings into account. Although the first £1,000 of interest will indeed be tax free, the remainder will be covered by the starting rate band for savings income. Therefore, based on the above income figures, the only income on which your neighbour should be taxed is pension 1 (BR) and £746 of pension 2. If none of her interest is taxable, her code should be 11,000 - 9,856 = 1,144 = 114L.

If HMRC estimate her income from pension 2 to be £3,000, then her non savings income would be 9,856 + 1,500 + 3,000 = 14,356, using up 3,356 of her starting rate band for savings income. She would then have £1,644 of interest within the starting rate band, and £1,956 taxable, of which £1,000 would be covered by the PSA, as per the coding notice. But that's conjecture on my part that they might have estimated Pension 2 at £3,000! I would check with HMRC that they have the correct income figures for 16/17 (after checking the same with your neighbour).

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By Richard Willis
05th Apr 2016 09:35

As a pure PAYE employee

How would I get relief on my first £1000 savings interest (I wish!).  All my savings are in ISAs so it won't affect me but if they were not would this push me into SA?

Presumably the banks will still have to deduct tax on all interest as they won't necessarily be privy to all one's savings.

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Replying to thevaliant:
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By steve01257
05th Apr 2016 10:02

Richard,

The banks, building societies will not be deducting any tax from interest with effect from the 6 April 2016.

 

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