The HMRC savings tax error has left thousands of savers in the UK concerned that they may have paid more tax than they owed. Incorrect bank data and tax code mistakes have led to inflated tax bills. Some people are being charged for savings interest. The issue has affected taxpayers across the UK, including people with tax-free ISA savings accounts.
Key Points
- HMRC has been accused of using incorrect bank data to calculate savings tax
- Some savers were wrongly taxed on ISA interest, which is tax-free
- Errors reportedly include duplicated figures and incorrect account links
- One worker allegedly overpaid £1,476 after HMRC overestimated interest earnings
- Financial experts are urging people to check their PAYE tax codes carefully
- HMRC says tax codes are updated using the latest information from banks
How the HMRC Savings Tax Error Started
The problem dates back to reforms introduced in 2016 under former Chancellor George Osborne. Banks were ordered to share customers’ annual savings interest data directly with HMRC so the tax authority could automatically collect any unpaid tax through PAYE tax codes. The system was designed to simplify the way savings tax was handled.
Basic-rate taxpayers were allowed to earn up to £1,000 in savings interest tax-free each year, while higher-rate taxpayers received a £500 allowance. However, reports now suggest the system has created serious problems for some savers. According to the Telegraph, errors have included duplicated interest figures, savings being linked to the wrong person, and tax-free ISA interest being incorrectly treated as taxable income.
Also Read: Disneyland Paris Appoints a New Leaders on the Board
Savers Report Being Overcharged by Thousands
Several real-life examples have highlighted the scale of the issue. One case involved HMRC estimating that a worker had earned £3,847 in untaxed savings interest. The actual figure was reportedly just £94. The mistake allegedly caused the individual to overpay £1,476 in tax. Another pensioner reportedly discovered that HMRC systems had duplicated or even triplicated her savings interest records over multiple years.
Financial advisers told Aberdeen Live that they are seeing a growing number of cases where PAYE tax codes appear to contain incorrect savings interest calculations. Under current rules, any interest earned inside an ISA is completely tax-free and does not need to be declared to HMRC. Yet some ISA holders were reportedly still taxed after banks mistakenly flagged the money as taxable savings income.
Experts Warn Taxpayers Not to Assume HMRC Figures are Correct
Tax specialists have warned savers to check every tax notice carefully instead of assuming HMRC calculations are accurate. Sarah Weston, technical officer at the Low Incomes Tax Reform Group, said: “It is important that taxpayers do not assume any figures received from HMRC are correct.” She added: “We urge them to check any savings interest figures included in their PAYE coding notice or end-of-year tax calculations against their records and contact HMRC if something does not look right.”
James Daley, managing director of Fairer Finance, also criticised the situation. He said: “People should be able to have confidence that the taxman can get its sums right.” He warned that errors like these damage trust in the tax system.
Why More People Could Now Be Affected
The issue comes as rising interest rates push more savers above the personal savings allowance threshold. The allowance has remained frozen since 2016 despite higher savings rates. As a result, millions more people are now paying tax on savings interest. The Sun, citing AJ Bell, suggests that around 2.64 million people will pay tax on savings interest this financial year. In the 2021/22 tax year, the number stood at roughly 647,000.
That sharp increase means even small reporting errors can now have a much bigger impact on household finances. Additional-rate taxpayers do not receive any personal savings allowance at all, while higher-rate taxpayers only receive £500 tax-free.
Also Read: 150 Mother’s Day Trivia Questions And Answers For A Fun Celebration
HMRC Responds to Criticism
HMRC has defended the current system and said it uses the latest available information from financial institutions. A spokesperson said: “We don’t want anyone to overpay or underpay tax, so we update tax codes based on the most recent data available and work with financial institutions to get information in as close to real time as possible.” The department also said taxpayers should contact HMRC immediately if their tax code appears incorrect.
Despite that response, critics argue HMRC has known about problems within the system for years. A 2022 Parliamentary and Health Service Ombudsman investigation reportedly found “failings” in the way HMRC entered bank interest data in one case dating back to 2018.
Changes Planned From 2028
The government is planning further reforms aimed at improving accuracy. From 2028, banks are expected to collect customers’ National Insurance numbers and report savings interest data to HMRC quarterly instead of annually. MSN reports that HMRC believes the changes will help taxpayers “get the right tax bill the first time.” However, some experts fear expanding data-sharing powers could create even more confusion if existing reporting problems are not fully resolved first.
How Savers Can Check If They Were Affected
Experts say anyone worried about a possible HMRC savings tax error should review their PAYE tax code, savings interest statements and ISA records carefully. People can check their tax code through their personal tax account online, on payslips, through the HMRC app, or on a tax code notice letter. Financial experts also recommend keeping copies of bank interest statements and contacting HMRC quickly if any figures appear incorrect.
Sources & References:
Telegraph – The HMRC savings tax error includes both duplicate interest and the incorrect treatment of tax-free ISA interest as taxable income.
Aberdeen Live – A growing number of cases of the HMRC savings tax error.
The Sun – Around 2.64 million people will pay tax on savings interest this financial year.
MSN – The government is looking to make changes in 2028.
Recommended
