Opening a letter from HMRC about savings interest can be unsettling, especially if the figure quoted does not match what you actually earned. The good news is that these errors are more common than most people realise, and there is a clear process for checking and correcting them.
This guide explains how HMRC calculates tax on savings interest, why the figures sometimes go wrong, and exactly what to do if you think yours has.
Quick Answer
If you think HMRC has the wrong figure for your savings interest, the first step is to check your own bank statements against the amount HMRC has used, then contact HMRC through your Personal Tax Account or by phone to request a breakdown. If the figure is genuinely wrong, HMRC can correct it, and you may be able to reclaim overpaid tax going back up to four years.
How HMRC Calculates Tax on Savings Interest
Banks and building societies report the interest they pay you directly to HMRC each year. HMRC then uses this information, combined with your other income, to work out whether any tax is due on that interest. For most people, this happens automatically through a tax code adjustment or a Simple Assessment, without any action needed on your part.
The system relies entirely on the accuracy of the data banks report and the calculations HMRC applies to it. When either of these goes wrong, the taxpayer is the one left holding an incorrect bill or a confusing letter.
The Personal Savings Allowance Explained
Not all savings interest is taxable. The Personal Savings Allowance sets an amount you can earn tax free each year, and it depends on your overall income tax band.
| Taxpayer type | Tax-free savings allowance |
|---|---|
| Basic rate taxpayer | £1,000 |
| Higher rate taxpayer | £500 |
| Additional rate taxpayer | £0 |
Interest earned above your allowance is taxed at your normal income tax rate. Interest held in an ISA does not count towards this allowance at all, since ISA interest is already tax free, and confusion between ISA and non-ISA accounts is one of the most common sources of errors.
Why HMRC Savings Interest Figures Can Be Wrong
Several genuine issues can cause the figure HMRC holds to be inaccurate. A bank may report interest for the wrong tax year, particularly around the April cut-off. Interest from a joint account is sometimes attributed entirely to one person rather than split between account holders. ISA interest can occasionally be reported alongside taxable interest by mistake. If you moved between multiple banks or closed accounts during the year, some interest can be missed or duplicated in the totals HMRC receives.
None of these situations are your fault, but they can still result in an incorrect tax code or an unexpected bill if left unchecked.
How to Check If Your Figure Is Incorrect
Start by gathering your own records. Most banks provide an annual interest summary, either in your online banking app or by post, showing the total interest paid on each account over the tax year. Add up the interest from every account you held, including any that were closed partway through the year, and compare this total to the figure HMRC has used in your tax code notice or Simple Assessment letter.
If your total is close to HMRC’s figure, a small discrepancy may simply reflect timing differences between tax years. If the numbers are significantly different, it is worth pursuing directly with HMRC.
Step-by-Step: What to Do If You Spot an Error
Gather your records
Collect interest summaries from every bank and building society account you held during the relevant tax year, including any accounts that were closed.
Request a breakdown from HMRC
Log into your Personal Tax Account online, or call HMRC directly, and ask for a breakdown of the savings interest figure they have used. This shows you exactly which accounts and amounts HMRC believes you earned interest from.
Query the discrepancy
Compare HMRC’s breakdown against your own bank records. If you find a genuine mismatch, explain the difference clearly, ideally with your bank statements or interest summaries ready to reference. HMRC can amend the figure and adjust your tax code or bill accordingly.
Worked Example
Consider a basic rate taxpayer with three savings accounts. Their own records show total interest of £1,400 across the year. HMRC’s letter states £1,900, a difference of £500. After requesting a breakdown, they discover HMRC had included interest from an account that was closed six months earlier, with the closing balance and its final interest payment reported twice by the bank. Once this is flagged and corrected, HMRC adjusts the figure down to the correct £1,400, and any extra tax already paid based on the inflated figure becomes reclaimable.
Can You Reclaim Overpaid Tax?
Yes. If you have paid tax based on an incorrect savings interest figure, you can generally reclaim the overpayment for up to four years after the end of the relevant tax year. The reclaim process typically involves contacting HMRC directly, explaining the error and providing evidence such as bank interest summaries. Keeping clear records for at least four years makes this process considerably smoother if an error comes to light later.
What Happens If You Ignore an HMRC Letter
Ignoring a tax code or assessment letter does not make the underlying figure disappear. If the amount is genuinely correct, unpaid tax can accumulate and may eventually be collected through an adjusted tax code or a direct payment demand. If the figure is wrong and you never query it, you could end up paying tax you do not actually owe. Responding promptly, even just to ask a clarifying question, is always the safer option.
Common Causes: ISA Interest Confusion and Multiple Accounts
Two situations account for a large share of savings tax queries. The first is ISA interest being mistakenly included in taxable totals, even though ISA interest should never count towards your Personal Savings Allowance calculation. The second is switching banks partway through the year, which increases the chance that interest gets reported late, twice, or against the wrong tax year. If either applies to you, it is worth checking your figures even if you have not received a letter, since these errors are not always flagged proactively by HMRC.
Expert Insight
Tax specialists frequently point out that the burden of accuracy still sits with individual taxpayers, even though the reporting system is largely automated. HMRC relies on banks to submit correct data, and it relies on taxpayers to notice when something looks wrong. This is particularly important for people who are not required to file a Self Assessment return, since they may have less regular contact with their overall tax position and are more likely to miss a quiet error in a tax code notice.
Frequently Asked Questions
What is the Personal Savings Allowance for the current tax year? Basic rate taxpayers can earn £1,000 in savings interest tax free, higher rate taxpayers can earn £500, and additional rate taxpayers have no tax-free savings allowance.
How do I check if HMRC’s savings interest figure is wrong? Compare your own bank interest summaries against the figure shown in your tax code notice or Simple Assessment letter. If the totals differ significantly, request a breakdown from HMRC to see which accounts they have included.
How far back can I reclaim overpaid tax? You can generally reclaim overpaid tax for up to four years after the end of the relevant tax year, provided you have evidence such as bank interest summaries to support your claim.
Does ISA interest count towards my Personal Savings Allowance? No. Interest earned within an ISA is already tax free and should not be included in the taxable savings interest figure HMRC uses to calculate your allowance.
What should I do if I get a letter about savings tax I do not understand? Do not ignore it. Gather your own bank records, compare them to the figure HMRC has used, and contact HMRC through your Personal Tax Account or by phone if anything looks incorrect.
Key Takeaways Checklist
- Check your bank’s annual interest summary for every account you held
- Compare your total against the figure in HMRC’s letter or tax code notice
- Request a full breakdown from HMRC if the numbers do not match
- Remember ISA interest should never be counted as taxable
- Keep records for at least four years in case a reclaim is needed
- Respond to HMRC promptly rather than ignoring a letter
Savings tax errors are rarely dramatic once you understand how the system works. A calm, methodical check against your own records is usually all it takes to spot a mistake and get it corrected.
