How do you pay Tax on your Interest and Dividend Income?3rd May 2018 | Posted in: Pensions, Savings & Investments, Personal Tax
Two of the many reasons why an individual must register for self-assessment and complete an annual tax return are listed below:
- Their income from savings or investments was £10,000 or more before tax in a tax year; or
- If their income from dividends was £10,000 or more before tax.
Once the income in the year is reported on the tax return, any tax due on this income would be calculated and could be settled by the tax payer.
What if your income from savings or dividends is less than £10,000?
Depending on a tax payer’s other sources of income, an individual may be entitled to £1,000 or £500 of savings income tax free, and tax may be due on the excess.
A taxpayer is also entitled to £2,000 of dividends tax free, any dividends in excess of this limit will be taxable at either 7.5%, 32.5% or 38.1%.
So how will this underpaid tax be calculated and collected if the individual does not prepare a tax return?
HMRC requires the tax payer to contact them every year and provide details of their income over the phone, and HMRC will calculate any underpayment and provide a means of payment. This will likely lead to an adjustment in your tax code to deduct the tax though monthly salary or pension income.
If the tax payer fails to report the income, HMRC may insist upon late payment interest and penalties. It is the tax payer’s own responsibility to ensure that their tax affairs are correct and up to date.
At present, the best method of ensuring that all income is reported to HMRC and no underpayment arises, would be to complete an annual tax return, even if it is not requested or required by HMRC. There is no problem with voluntarily submitting a tax return to HMRC.
If you would like to discuss this further with a member of our Tax Department, please do not hesitate to contact us on 0131 317 7377.