Many UK taxpayers are surprised to receive tax letters from HM Revenue and Customs about savings interest, particularly when they believe their tax affairs are already up to date.
HMRC savings tax letters have become more common in recent years as banks and building societies routinely share interest data directly with the tax authority.
As interest rates have risen, more people have crossed tax-free thresholds without realising it, triggering automated checks and, in some cases, unexpected correspondence.
Understanding why these letters are sent and whether you need to notify HMRC yourself can help prevent confusion and avoid potential penalties.
Why HMRC Sends Savings Tax Letters
HMRC receives information about savings interest directly from banks and building societies at the end of each tax year.
This data includes how much interest you earned across savings accounts, ISAs excluded, and which institution paid it.
HMRC then compares this information with your tax records to see whether any tax is due.
If HMRC believes you have paid too little tax because of savings interest, it may issue a letter explaining the discrepancy.
In many cases, the letter is informational rather than accusatory and outlines what HMRC thinks you owe or asks you to check the figures.
Common reasons people receive these letters include:
- Interest rates rising faster than expected
- Holding multiple savings accounts across different providers
- Moving from a low-interest environment into taxable interest territory
- Changes in income that affect tax bands
How Savings Interest Is Taxed In The UK
Savings interest is taxable, but most people can earn some interest tax-free thanks to allowances.
The main allowance is the Personal Savings Allowance, which depends on your income tax band.
Basic rate taxpayers can earn up to £1,000 in savings interest tax-free each tax year.
Higher rate taxpayers have a lower allowance of £500.
Additional rate taxpayers do not receive a Personal Savings Allowance.
There is also the Starting Rate for Savings, which allows up to £5,000 of interest to be earned tax-free if your other income is low enough.
ISAs remain completely tax-free, regardless of how much interest they generate.
Key points about savings tax allowances:
- Allowances apply per tax year, not per account
- Interest across all non-ISA savings is added together
- Exceeding the allowance may trigger a tax bill
Do You Have To Notify HMRC Of Savings Interest?
Whether you need to actively notify HMRC depends on your circumstances.
For most people who are employed or receive a pension through PAYE, HMRC automatically collects tax on savings interest by adjusting their tax code.
In these cases, you usually do not need to contact HMRC unless the figures HMRC is using are incorrect.
However, there are situations where you are expected to notify HMRC yourself.
If you complete a Self Assessment tax return, you must declare your savings interest on that return, regardless of whether it is above or below your allowance.
If you do not normally complete a tax return but your savings interest exceeds your allowance and HMRC has not adjusted your tax code, you may need to inform them.
You are more likely to need to notify HMRC if:
- You are self-employed or already file a tax return
- You earn significant interest and HMRC has not contacted you
- Your income situation has changed recently
- You receive savings income from overseas accounts
What Happens If You Ignore A Savings Tax Letter?
HMRC savings tax letters should not be ignored, even if you believe no tax is due.
In many cases, the letter includes calculations based on information HMRC already holds, but those figures are not always correct.
If you do nothing and HMRC’s estimate is wrong, you could end up paying more tax than necessary or facing follow-up correspondence.
If HMRC believes tax is owed and you do not respond, it may:
- Adjust your tax code to collect the tax automatically
- Issue a Simple Assessment tax bill
- Request a Self Assessment return
- Apply interest on unpaid tax
Responding promptly allows you to correct any errors and clarify your position.
How To Check If HMRC’s Figures Are Correct
Before contacting HMRC, it is important to check your own records.
Gather annual interest statements from your banks and building societies, which usually show the total interest paid during the tax year.
Compare this with the figure HMRC has quoted in its letter.
Also consider whether any of the interest came from ISAs, which should not be included in taxable savings interest.
If HMRC’s figure is too high, it may be because:
- An account was closed partway through the year
- Interest was reported twice by mistake
- ISA interest was incorrectly included
- Joint accounts were misattributed
If the figure is too low, you may still need to notify HMRC to avoid underpaying tax.
Steps to take when checking HMRC calculations:
- Review all savings accounts, not just one
- Check the tax year dates carefully
- Separate ISA and non-ISA interest
How HMRC Collects Any Tax Owed
If tax is due on savings interest and you are not in Self Assessment, HMRC usually collects it by adjusting your tax code.
This spreads the tax over the following tax year rather than requiring a lump-sum payment.
For example, if you owe around £200 in savings tax, HMRC may reduce your tax-free allowance so that extra tax is deducted from your salary or pension each month.
If the amount owed is larger, HMRC may issue a Simple Assessment, which is a formal tax bill that must be paid directly.
People in Self Assessment will pay the tax as part of their normal tax return process.
Why More People Are Hearing From HMRC
The increase in HMRC savings tax letters is closely linked to higher interest rates.
Savings accounts that once paid minimal interest now generate hundreds or even thousands of pounds in interest annually.
For people who have not reviewed their tax position in years, this change can come as a surprise.
Digital data sharing between banks and HMRC has also become more efficient, making it easier for HMRC to identify discrepancies.
This means taxpayers are more likely to be contacted even for relatively small amounts of tax.
Reasons letters have become more common:
- Higher interest rates across savings products
- Greater use of automated data matching
- More people exceeding allowances unintentionally
What To Do If You Are Unsure
If you are uncertain whether you need to notify HMRC, checking your Personal Tax Account online can provide clarity.
This shows what HMRC believes you have earned in savings interest and whether any tax adjustments have been made.
If the information looks wrong or incomplete, contacting HMRC directly can help resolve the issue before it escalates.
For complex situations, such as multiple income sources or overseas savings, professional tax advice may be appropriate.
Understanding how savings interest is taxed and how HMRC uses the information it receives can reduce stress and ensure you remain compliant without overpaying tax.
