Thousands of savers could owe HMRC tax and not know it - what to do now

Huge numbers of savers may owe HMRC tax on their savings interest, with the taxman warning that it cannot match one in five bank accounts to the correct taxpayer

Savers are being urged to act swiftly or face potential fines from HMRC, following revelations that a large number may owe tax without realising it.

With interest rates on savings accounts having risen significantly in recent years, the taxman is now focusing on those earning more than the frozen personal savings allowance.

The Personal Savings Allowance, which has remained unchanged since 2016, allows basic-rate taxpayers to earn just £1,000 a year in interest tax-free. Higher-rate taxpayers only get £500, while top-rate earners receive nothing at all.

However, with many easy-access savings accounts now offering over 4%, even modest savings can exceed the limit - particularly after three years of rate increases.

Simultaneously, the number of people affected is skyrocketing. Treasury estimates predict an additional 893,000 taxpayers will be caught out by 2028-29.

Shockingly, HMRC has admitted it cannot match approximately one in five bank and building society accounts to the correct taxpayer - meaning thousands may owe tax and never be informed.

Helen Thornley, of the Association of Taxation Technicians (ATT), told the FT: "There are quite a few penalties that can build up - failure to notify, late filing, late payment, and then interest on top. It adds up quickly."

Senga Prior, ATT president, added: "HMRC is making it clear that responsibility passes back to the individual. So we urge anyone who thinks they may owe tax on savings interest to contact HMRC as soon as they can."

Unless prompted by HMRC, savers may not receive their self-assessment letters due to prevalent delays and mismatches.

The Association of Taxation Technicians (ATT) has highlighted that HMRC has only recently completed sending out interest tax notices for 2023–24, a full five months after the deadline for self-assessment registration had passed, leaving many savers in the dark.

David Denton, a wealth expert at Quilter Cheviot, suggested that contacting HMRC directly might be more effective than navigating self-assessment. However, he cautioned: "It can be quite painful to phone them up. The lines are often clogged."

For those who are employed or on a pension, HMRC can adjust your tax code to automatically collect the money, but this is dependent on having the correct data. If they don't, the responsibility falls squarely on you.

HMRC stated: "We want to help customers get their tax right, which is why we've been writing to people to inform them their savings will incur tax. It's an individual's responsibility to ensure they pay the correct tax, and they should let us know as soon as possible if they believe they haven't."

Critics argue that this approach places the entire burden on ordinary savers, many of whom may be completely unaware they've exceeded the limit until fines start arriving in the post.