Where to save money for tax bill?

[MotherLanded]

What do people do with money they are putting aside for a tax bill?

In previous years I have put it into my ISA then removed when I need to pay the bill. But I'm not sure this is the most sensible approach.

What do you tend to do and what makes the most financial sense?

Anywhere you won't spend it on something else, or tied up.

flexible Cash ISA
NS&I Premium Bonds
easy access savings account

If you have a lot of other cash savings and or a low personal savings allowance you may not want to use easy access savings account as interest on that is taxable. However for most people I doubt that would matter.

Key thing is that you can get the money out when you need it and what you paid in is still there.

I just use a high interest easy access account and pay it when it’s due. I don’t have enough savings for the interest earned to impact my tax return.

Unless it's an enormous amount wouldn't the savings account with the highest interest rate and access when you need it be the best solution? You pay tax on your internet then I assume you already factor that in

I submitted my return at the beginning of April and set up a DD to HMRC so it'll be paid off by Christmas. I know technically I could earn a little interest on it but I hate making a big payment just after Christmas.

I put it in premium bonds

Just the best interest paying cash savings.

Premium bonds also a good idea especially if you've got other cash and have used your ISA allowance. Or are a higher rate tax payer.

Another idea especially if you want to put money away as you go along is to open regular savings accounts which pay a slightly higher interest rate. If you opened them in June and December they'd mature in time for when your tax is due at the end of July and January.

HMRC do pay interest if you're in credit on your tax account, so if you can afford to pay the tax as you go along that is another option.

Oh that is interesting. Looks like HMRC pays BoE Base Rate -1% as interest.
https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates#current-late-payment-and-repayment-interest-rates
So from 20th August 2024 it is 4% for early Income Tax/NI payment.

DP has set up a monthly direct debit/standing order so that £1,500 a month goes from the current account into a middling interest savings account.
He pays his tax bill directly from that and invests anything left over in S&S.

HMRC do have a system where you can save something every month to go towards next year's tax bill, which is what we do.

Easy to use, usually covers most of it too.