Paying tax on bank interest - SA and PAYE.

[Justa100]

I have been submitting tax self assessments since FY 19/20 and have been declaring bank interest so appropriate tax can be paid. Before I started completing self assessment how would any bank interest have been taxed? My tax advisor said that I should have been completing Self Assessment tax returns for this interest (maybe like £50 interest per year back when the interest rates were good for savers so we are talking small amounts) but I didn't even consider it as I was PAYE at the time. I read somewhere that banks report interest payments to HMRC and the tax gets collected under the subsequent years tax code, which sounds entirely feasible but contrary to what my tax advisor says. Any tax experts here who can explain how bank interest would have been taxed prior to 2019?

I'm PAYE and also pay tax on interest and HMRC seem to magically know what I owe and just my tax code. Sometimes it's not quite right, but it gets sorted out at the end of the year.

Interest rates were so low for so long though that maybe you never owed anything pre 2019? You get up to £1000 tax free

Ok great thats good to hear. I think the £1000 tax free allowance came in 2016 so i am all good since that date, just prior to 2016. My tax accountant says i should have filled in a self assessment for those years, im talking small money but she wants to do an HMRC disclosure on previous years but i just disagree. If what she says is correct then imagine the number of SA returns which would need to be filed for such small sums of money.

Bank interest used to be taxed at source until 2016. You had to fill in a form for a child's bank account s they wern;t taxed on it. The Personal Savings Allowance was then introduced and only people with a LOT of savings were liable to be taxed on it.

The banks report it to HMRC and it just comes off your tax code if you are PAYE. Usually later in the year. There is a limit though but I think that is £10k of interest. Many more will be paying tax now with higher rates of interest. Low earners under £17570 also get the starting rate of interest before tax

Can you move some of your savings into a cash ISA to avoid tax on them?

I’m sure Comefromaway is right- I remember filling in forms to get savings interest paid gross when I was a student and not earning enough to pay tax on the interest. The default was that it came taxed in the first place. You could claim it back, so the opposite to now where we get it paid in full and then get taxed later.