Too many low income earners are unnecessarily paying tax on their savings. If you feel that you are paying too much, you can register to receive interest on your savings free of tax. You can also apply to HMRC to claim back any overpaid tax on your savings, and for other reasons too.
How to get Tax Free Interest on Your Savings and how to Claim it Back
The standard rate of tax paid against the interest you receive on your savings is 20% – banks and building societies typically deduct this for you. However, if your total income is below the tax-free personal allowance, then you may apply for a refund and register to not pay tax on the interest.
Your total taxable income includes your working wages but excludes any benefits you might be receiving (though some other income sources are also excluded); the Personal Allowance is the threshold up to which you will pay no tax on your income.
If your income tax bill is Low
Many people earn only a small amount over the tax-free allowance. If this is the case then you may only have to pay a 10% tax rate on the interest on your savings. This is the “starting rate for savings”. If you fall into this category, then you will most likely be eligible to claim some tax back against what you have paid on your savings interest. You will be able to reclaim the difference between what you have paid and what you should have paid.
R85 form
You will need the R85 form in order to register for tax-free savings and send it to your bank or building society (though some will let you register your application over the phone). You will need a separate R85 for each bank or building society assuming that you have multiple accounts. You will also need to fill in a new form if you open a new account.
It is fairly common for young people under the age of 16 to have savings accounts. In these cases, a parent or guardian will have to register the application. The account holder will need to fill out and sign a new R85 assuming that the tax-free status still applies.
How To Claim Back Savings Tax
There is a separate form (the R40) for those who think they have paid too much tax on the interest on their savings. You will need to file a separate claim for every year that you intend to claim for. So long as you claim before each subsequent deadline, there is a high chance you will be entitled to get back everything you have overpaid.
What happens if your circumstances change
It is expected that an individual’s personal circumstances will change over the course of a year and between financial years. If your income goes up, you may no longer be entitled to certain benefits. If this is the case, then it is important that you inform your bank or building society as early as possible so that they can resume deducting tax from your interest. Failure to do so might mean a tax bill at the end of the financial year.
What else can I claim for?
If your reclaiming tax on your savings it’s an ideal time to check to see if your due a tax rebate for any other reason. Lot’s of employed people are entitled to claim a tax rebate for reasons like having expenses because of their job.
