UK workers 'should check HMRC tax code now' with new rules from April

UK workers 'should check HMRC tax code now' with new rules from April An expert has explained what is changing and what employees should do People across the UK are being urged to check their tax code now before changes come into effect. Harvey Dhillon, founder and CEO of accountancy firm Zmartly, explained how changes announced in last week's Budget mean that there will be a higher rate of tax on the interest people earn on their savings from April 2027. For those paying the basic rate of tax, it will rise to 24 per cent from the start of the next tax year, April 6. Harvey explained that people who are employed or draw a pension will likely not pay it as a separate bill. HMRC will collect it through their tax code when their salary or pension is paid. He explained, therefore, that the "first place to check was your tax code". What the Budget proposed Harvey said: "Right now, savings interest above your tax-free allowance is taxed at your usual rate of Income Tax. That's 20 per cent for a basic rate taxpayer, 40 per cent for a higher rate taxpayer and 45 per cent at the additional rate. "A rise was already law before the Budget: the Finance Act 2026 sets 22, 42 and 47 per cent for the 2027 to 2028 tax year. On October 28 the Budget proposed adding a further two percentage points, so the rates would become 24, 44 and 49 per cent. That extra step needs the Finance Bill 2026-27 to pass, so for now it's a plan rather than law. "On the same taxable interest, a basic rate taxpayer would pay a fifth more tax than today. A higher rate taxpayer would pay a tenth more. "What hasn't moved is the allowance. The Personal Savings Allowance stays at £1,000 of interest a year for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers get none." What that looks like in pounds Harvey gave an illustration, assuming a 4 per cent interest rate. He said to imagine that a basic rate taxpayer earning £30,000 a year in wages has £40,000 in an easy access account, outside an Individual Savings Account (ISA). At 4 per cent, it earns £1,600 in a year. The first £1,000 is covered by the allowance, which leaves £600 to tax. Currently, that would mean £120 in tax, whereas from April it would be £144. He added that a higher rate taxpayer with the same savings only gets a £500 allowance, so £1,100 is taxed. That's £440 today and £484 at the proposed 44 per cent. Harvey said: "Going from today's 20 per cent to the proposed 24 adds £24 a year for the basic rate taxpayer and from 40 to 44 adds £44 for the higher rate one. Not life-changing, but it comes out quietly, which is why it's worth checking." How the tax actually reaches you Harvey said: "After each tax year ends, your bank or building society tells HMRC how much interest it paid you. You don't have to do anything for that to happen. "If you're employed or get a pension, HMRC will usually collect any tax due by changing your tax code. That means more tax is taken from your wages or pension. "HMRC can also build an estimate of this year's interest into your code. If that estimate is wrong, you may pay the wrong amount until it's corrected. "If you owe tax on your interest, HMRC will send you a tax calculation, usually between June and the following March. If you don't have a tax code, or it can't be changed, it may send a Simple Assessment letter instead. And if your interest goes over £10,000, you need to report it on a Self Assessment tax return." Tax allowance for lower earners Harvey added that there was also the starting rate for savings. If your other taxable income, not counting savings interest or dividends, is under £17,570, you can earn up to £5,000 of interest without paying tax on it. It shrinks as your other income rises. Every £1 above your £12,570 Personal Allowance knocks £1 off it. HMRC's own example is someone earning £16,000 in wages, who still has £1,570 of it left. He said: "So someone with a part-time job or a modest pension may owe less than they fear. The Budget left this allowance unchanged as well." What financial expert would do this week Harvey said: "Log in to your Personal Tax Account on gov.uk and check your tax code. If it includes an estimate for savings interest, compare it with what your accounts are actually paying. "If you've closed an account, moved money into an ISA, or your rate has dropped, the estimate may be out of date. Ask HMRC to update it and you'll get a new tax code. Money inside an ISA stays out of all this, and the Budget kept the yearly ISA limit at £20,000. "When a tax calculation arrives, check it against your bank statements. If the figures don't match, contact HMRC. Our guide to how the Personal Savings Allowance works explains which interest counts. "I run my own household a bit like a business. My personal bank accounts and credit cards are connected to Xero, and I do an 'imaginary tax return' on my own life: what came in, what went out. You don't need software to do the savings part. A list of your accounts and last year's interest will do. "My own view is that we should encourage people to save for themselves, not discourage it. If the rise goes through, it pays to know your own numbers rather than leave them to a tax code."