Declaring Bank Interest on my self assessment

I ended up calling HMRC and spoke to a very helpful agent who confirmed you only need to enter the amount above your PSA. This isn’t made clear on the form, it just says enter untaxed gross interest. So if your PSA is £1,000, and you’ve earned £1,100 in gross interest, you only need to enter £100. Anything less than your PSA you don’t have to declare.

...pj, that goes against all HMRC instructions and all 3rd party software, SA returns have always been completed on the basis that you enter the total figure of interest for the year and the calculation then calculates what is laible and deducts any allowance due...comments HMRC ?

Thats interesting. So the software you mention, does it also increase your tax bill as you increase the amount of gross savings interest under the PSA threshold? So if my PSA was £500, and you enter anything between £0 and £500, does the tax bill increase? Which suggests that tax is being paid on *all* savings interest.

Pj...in your example you mention the difference between your methods of £21.61 and £17.61 i.e. £4. If you are altering the figures by £19 then, as you state you are a higher rate payer, the difference should be at 40% ie £7.60. If a top rate payer then at 45%. If you are a top rate payer you do not get a PSA at all. If you are 40% then the fact that the system is taxing the £19 at 20% shows something different is going on on your calculation. There has never been an issue with bank interest when entered in full in the correct place on the return...so something is going on with your calculation, but, to repeat, in all cases TOTAL interest should be entered on anyones return (excluding ISA's) not the bit above what someone thinks their PSA is. The advice you received over the phone from HMRC is incorrect. https://assets.publishing.service.gov.uk/media/67dab07e69606cdea9e08822/SA150-Notes-2025.pdf see TRG5...you enter ANY interest...not interest above a PSA, and if you dont declare it all your return will be incorrect.

pj...sorry, final thought...your'e not over £100k are you? whereby you lose personal allowances? If so, the £19, say £20 rounded up, whilst within PSA this still counts to add to income to count in reducing personal allowances further, so, losing £1 for £2, on £20 youd lose another £10 personal allowance, which at 40% is the £4 difference you mention...and that would be the same whether you included as bank interest or salary (as you tried) maybe thats it...but, to repeat, even if not, you do not reduce interest by PSA in reporting on SA...ever...you always include all interest, hard and fast rule, been that way since 1997, and the advice you received over the phone was incorrect...I'll leave it there

Pj...re your question...all 3rd party software used by accountants mirrors the HMRC system when it comes to the calculation, if there are discrepancies in the way the calculation works a return would be rejected (it happens sometimes in really complicated scenarios...the HMRC detailed calculation for every taxpayer for 2024/25 is 91 pages long!). If someone is a basic rate payer and I enter £100, it will show £100 at 0% (its not an exemption, its still taxable income to be considered for various situations, just its taxed in itself at 0%). Similarly if someone is a 40% payer and I enter £100 it will show £100 at 0%. If I enter £1100 for the basic rate payer it will show £1000 at 0% and £100 at 20%. If I enter £1000 for a 40% payer it will show £500 at 0% and £600 at 40%. If I enter £1100 for a 45% payer it will show the full £1100 at 45%. If, as an example per the above as to how it interacts with some other situations, I enter £1100 for a taxpayer with income between £100k and £125K it will show at 40% per above and it will restrict that persons personal allowance by £1 for every £2 between those figures, so including £1100 would reduce personal allowance by £550, increasing the amount liable to tax for that person on all sources. There are other areas in the calculation the interest would also affect, dependant on the income and allowance composition of the taxpayer (far too many different sceanrios to go in to on here)...so its not that the system taxes it incorrectly, its often that the taxpayer thinks the interest within the £1000 or £500 isnt considered at all in any tax calculation, and it is, in everyones, its just that some calculations mean it really is totally tax free (at 0%), but for other taxpayers it has an effect, not in its actual tax rates, but how it then changes the total liability due to its inclusion...and it has always been that way as long as its been at 0%.

Wow! You should work for HMRC! This is the most comprehensive response I (or anyone ) has had on this topic! Thank you very much for taking the time to explain what’s happening, I understand now. So the reason my tax bill is increasing is because the interest is considered additional income, increasing my gross and hence reducing my personal allowance. In doing so it means I am having to pay more tax for earning income through savings interest, even though the interest on the savings is “tax free”. It feels like a stealth tax. (Yes it’s below your PSA, but we can still collect more tax from you!) Perhaps the agent at HMRC misunderstood what I was saying, or I misunderstood him. Either way, it explains why the HMRC calculation matches mine when I increase my gross income by the interest amount. I appreciate your time, another tax puzzle solved.