LITRG Press release: Pay savings income without deducting tax, say campaigners

The LITRG has called for all savings income to be paid without deduction of tax at source when the new Personal Savings Allowance (PSA) is introduced next year. This would automatically give the correct tax due in the majority of cases, which would be welcome for both unrepresented taxpayers and HMRC, for whom it would reduce administration.

LITRG has also told HMRC it must provide clear communications and guidance to ensure individuals understand the PSA.

Anthony Thomas, Chairman of the LITRG, said:

“If HMRC act on our recommendation, savers will know that no tax has been deducted from any of their savings income. They will not have to check whether or not tax has been deducted from each individual source of income. Otherwise, we believe that deduction of tax at source from some savings income will continue to confuse many low-income taxpayers and they will not claim back tax to which they are entitled.”

A potential drawback of not deducting tax at source is that some individuals will have to notify HMRC if their savings income is high enough to generate a tax liability. But LITRG believes that many of those affected will either be already in the habit of filing a tax return or will be able to deal with the tax through the new proposed digital tax accounts or process known as ‘making tax easier’.

Anthony Thomas said:

“Treating all savings income similarly will remove much unnecessary complexity. Otherwise there is a risk that many non-taxpayers, or savers eligible for the starting rate on savings income, will continue not to reclaim tax deducted in excess of their liability, because they perceive it as a complicated process or are simply unaware that they can get some of their overpaid tax back.

“It is essential that HMRC provide clear guidance to help individuals understand whether or not they are eligible for the PSA, what type of income is eligible for the PSA, how much of their savings income falls within the PSA and how much is liable to tax. It is also crucial that HMRC make it clear how to calculate and pay any additional tax liability and how to claim a tax refund if appropriate.”

LITRG’s recent submission on the ‘Deduction of income tax from savings income: implementation of the Personal Savings Allowance’ can viewed here.

Contact: Gillian Wrigley (please use form at or follow us on Twitter: @LITRGNews

Posted in: Press releases