Bank and building society interest - Example 3
Sue is 21 and works part time as a free-lance Italian interpreter, earning £3,000 a year. She also has some savings in the building society that earns about £1,800 a year interest, and which is paid on 1 April each year. Sue's total annual income is about £ 4,800, and because it is less than her income tax personal allowance she can receive her interest without tax taken off - Sue completed a form R85 several years ago.
In 2008, because of a merger with another building society, the annual interest
is not paid until 7 April. In 2009, and later years, the payment date is
once again 1 April. The year the interest was paid on 7 April will change
Sue's tax calculation because interest is taxable when it is paid. And instead
of being paid in the year 2007-2008 as she expected, it has been paid in
the year 2008-2009. A tax year runs from 6 April to 5 April. So in 2008-2009
Sue will receive 2 payments of £1,800 each, the first on 7 April 2008
and the second on 1 April 2009.
Sue's tax calculations for the years 2007-2008 and 2008-2009 look like this.
|
Gross |
Tax deducted |
|---|---|---|
Earned income |
£3000 |
nil |
Interest |
nil |
nil |
Total |
£3000 |
nil |
Less personal allowance |
£5,225 |
|
There is no tax to pay during 2007-2008
|
Gross |
Tax deducted |
|---|---|---|
Earned income |
£3000 |
nil |
Interest |
£3,600 |
nil |
Total |
£6,600 |
nil |
Less allowance |
£6,035 |
|
Taxable income |
£565 x 10% |
= £56.50 tax due |
Sue should have cancelled her form R85. She will now need to contact her tax office to pay the tax due.
