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How you could claim hundreds of pounds from the taxman

Paul Lewis / 02 May 2014

Are you owed hundreds of pounds by the taxman? With the rise and rise of the personal tax allowance – which is the amount of income you can have before income tax is due – more and more people will be.

Tax sign being cut by scissors
Paul Lewis shows you how you could claim back tax

It works like this. If you have savings and your total income is below the level of the personal allowance - currently £10,000 a year - you need not pay tax on the interest your savings earn. But the bank or building society will automatically deduct a fifth of the interest and pass it on to HM Revenue & Customs.

Don't blame them! It is the law and they have to do it. But you can claim it back – and stop it happening in future.

How to claim

First, you should claim back the tax you have paid for previous years. You can go back to 2010/11 but remember the personal allowance was lower in earlier years. Print off a form called an R40 from the HMRC website.

Print out one form for each year you think you may be owed money. Fill them in and send it to HMRC Leicester & Northants (Claims), Saxon House, 1 Causeway Lane, Leicester LE1 4AA. Within a few weeks you should get a cheque for the tax that was wrongly deducted.

Find out which taxes you can legally avoid.

Prevent future deductions

Second, you have to make sure that the tax is not deducted in future. That needs another form (of course!) called an R85 and should ensure your bank or building society stops deducting tax off the interest paid on your savings. 

Download R85 here. Fill it in and give it to your bank or building society. You will need one for each place where you have savings. There will still be a small amount already deducted since April, so claim that back too on an R40.

If you have a joint account you will both need to fill in the forms. If just one of you is below the limit you can reclaim the tax paid on half the interest.

Read our guide to the things you may need to pay tax on.

Claiming back savings interest

So far so good. But there’s more. Even those with slightly higher incomes may be able to claim back some savings interest. This is the complicated bit. 

If your income is slightly higher than the personal allowance you may still be due some tax back. First, any savings income that is below the personal allowance should not have been taxed and you can claim back the tax deducted from that part.

Second, if your savings interest is what takes you above the personal allowance, then the first band of it should be taxed at 10p in the pound – but the bank will deduct 20p in the pound. You can claim back the difference. 

In 2013/14 that band was £2790 on top of the personal allowance of £9440. So if your total income was no more than £12,230 you can claim back some tax on the savings interest above the personal allowance. Use the same form R40.

If you were born before April 6, 1948 the personal allowance is higher. So if you are that age add a few hundred pounds to the limits quoted above.

The rules can get a bit complicated. There is more information here.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.