There is no hiding from the fact that huge changes to the tax system comes into effect from April, the introduction of the Personal Savings Allowance and the Dividend Allowance, will see radical changes to individuals tax bills, across all tax bands.
Many will find their employment income reduced, due to changes to tax codes, to compensate for their interest not being taxed at source, which for many will be inconvenient, savings is for growing and wages is for enjoying. An individual earning £45,000 and receiving interest of £4,000 could see a reduction in their take home salary of £116.66 per month or if not included in their tax code could find themselves with a tax bill of £1,400.
For those with lower income relying on their savings and the interest their savings generates, this could see them receiving tax bills for the first time. Usually individuals with earned income below their personal allowance and large savings income, would expect a refund of tax, but under the new regime, there is potential for huge swings. We are looking to advise our clients who fall into this category, one client who usually receives a refund of £1,600 is now expecting a liability of £3,600, a swing of £5,200!
With scenarios such as this, you would think HM Revenue and Customs would be taking every opportunity they could, to warn individuals of these implication, but unfortunately they have not. Also, the banks are advising on mass, that interest will be paid gross because of the Personal Saving allowance, but no individual, tailored advice is being given, so people could end up with a large tax amount to find. We are not the only ones worrying about this non-published potential issue, the House of Lords committee concluded, that HMRC’s communications strategy, is “inadequate”.