HM Revenue & Customs (HMRC) is currently reaching out to around 900,000 individuals across the UK in an initiative aimed at reviewing untaxed savings interest. This development follows HMRC’s latest compliance measures, which seek to ensure that taxpayers accurately report any savings interest that may be liable for taxation.
Financial specialists have emphasised that individuals with relatively modest savings may be among those contacted, as the interest earned could exceed the available Personal Savings Allowance and trigger a tax liability.
This intervention underscores HMRC’s ongoing effort to close the gap on underreported income and improve adherence to tax regulations.
HMRC begins large-scale review of savings interest
HMRC has initiated a wide-ranging compliance review focusing on savings interest that may not have been reported or taxed correctly. According to independent financial professionals, letters are being sent to individuals whose bank account balances suggest the potential for untaxed interest income.
This approach follows routine HMRC analysis of data reported by banks and building societies, aimed at investigating discrepancies between interest received and tax reported on personal accounts.
Scope of the HMRC compliance campaign
The latest HMRC campaign targets approximately 900,000 people, with selection criteria primarily linked to declared balances in savings accounts.
Financial adviser Grant Hamill explained that individuals with more than £3,500 in a savings account may be contacted, as this sum can generate sufficient interest to breach lower Personal Savings Allowance thresholds.
HMRC’s correspondence typically signals the need for individuals to review their interest earnings, rather than an immediate demand for outstanding tax or a penalty.
Understanding the Personal Savings Allowance
The Personal Savings Allowance (PSA) was introduced to allow most savers to receive some interest tax-free. As of the latest HMRC guidance, basic rate taxpayers are entitled to earn up to £1,000 in savings interest annually without paying tax.
Higher rate taxpayers, however, see the allowance lowered to £500, while additional rate taxpayers have no savings allowance. Interest exceeding these limits is subject to income tax at an individual’s prevailing rate.
For employees and pensioners, HMRC may automatically adjust tax codes to collect the correct tax, but if untaxed interest is substantial, a Self Assessment tax return could be required.
Who may be contacted by HMRC
Those most likely to receive a letter from HMRC include individuals whose savings generated untaxed interest exceeding their PSA. A bank balance of just £3,500, especially at higher interest rates, may be enough to surpass the reduced £500 allowance available to higher rate taxpayers.
Financial professionals highlight that many receiving letters might not have previously completed a Self Assessment tax return and could be unfamiliar with this requirement.
What to expect if contacted
According to Grant Hamill, the HMRC letters are issued as an opportunity for recipients to check they have reported savings interest correctly. He stated, “These letters are not an accusation or penalty, but rather a request for clarification.”
The communication serves as a reminder that accurately reporting all taxable income is a personal responsibility. Recipients are advised to review their bank statements and interest certificates. If additional tax is owed, HMRC will outline the steps needed, which may include registering for Self Assessment.
Final Summary
HMRC’s ongoing review places a spotlight on the importance of reporting all taxable savings interest, particularly for those whose balances or rates may take them over the Personal Savings Allowance limits.
Those contacted are urged not to panic but to ensure they understand their obligations, as the initiative is designed to prompt compliance rather than impose penalties. This action reflects HMRC’s use of third-party data and targeted communications to safeguard tax revenue.
For individuals seeking to clarify their tax position or track their compliance, digital financial tools such as the Pie app can assist with monitoring savings income and ensuring alignment with HMRC requirements.
