Taxpayers will have difficulty understanding the tax-free savings allowance which is being introduced from 6 April 2016, according to the Low Incomes Tax Reform Group (LITRG).
Basic rate taxpayers will be able to earn up to £1,000 tax-free from savings income or interest, while higher rate taxpayers can earn up to £500.
The group believes that changes will simplify the tax position for people with modest savings income, but how it works with other rates and allowances is complex.
In particular, the changes may prove difficult for those with fluctuating incomes or individuals who fall within the higher rate band for the first time.
Taxpayers may be unaware of the need to check the level of their savings income and understanding the correct tax rate that applies to them.
People will also need to keep HMRC up to date with changes to the value of their savings or risk financial charges.
Anthony Thomas, LITRG chairman, said:
“The highly complex operation of the savings allowance must be addressed to improve its clarity and avoid people feeling that they face arbitrary and unjust tax bills. A savings allowance that works similarly to the dividend allowance would potentially be much simpler to understand and use and seriously should be considered.
“People should keep an eye on their level of savings income to ensure they do not stray into a different taxable band. They should also continually check data received from HMRC.”
Contact us today to find out more about the personal savings allowance.
