TAX ON PLENDING #1

Updated: Feb 8

Welcome to the first of a few intro pieces between the team at Plend and the Tax guys at Otis.


A quick pseudo Ted talk if you will. We will try and touch on the most relevant stuff for the Plend Community, and make it fun and interesting. Ha.


To ease you all in we will start on interest income and how it is taxed by Her Majesty’s Revenue and Customs.


As a general rule we will be taxed on the income we earn and interest income is no different, unless of course there is a relief or an allowance available to use. These are the ones relevant for interest income received.



Personal Savings Allowance


In the olden-days whenever you received various forms of interest the banks deducted 20% and paid it over to revenue, (we guess they could no longer deal with doing the treasury's job for them and said no mas), now everything is paid gross, well mostly everything.


Most of us will not have to pay tax on the savings or interest income that we earn each year, this is because of the PSA.


Essentially how the PSA works is if you are a basic rate tax payer (i.e you only pay 20% on your income), you can earn £1,000 of interest tax-free.


If you are a higher rate tax payer (i.e you pay 40% tax on any of your income at 40%, even if it's only a pound) you can earn £500 worth of interest tax-free.


If you are an additional-rate taxpayer, well, I'm sorry friend no PSA for you.


The Personal savings allowances applies to a variety of different types of income, including but not limited to - interest from corporate bonds and gilts, interest from PPI, bank and building society interest and of course interest from Peer to Peer lending.



Starting rate for savings


There's also a lesser known rule where you may earn up to £5,000 of interest and pay no tax on that interest income, if..... (there is always an if or a but) your other sources of income are not more than £17,500.


The amount of the £5,000 available to you depends on how much you earn below the £17,500 and well explaining the mechanics is a bit too complex for an intro blog, so just know it's there for now.



Personal Allowance and ISA


We should point out that If you earn interest in an ISA it doesn't eat into your personal savings allowance nor your starting rate for savings. This is because ISA are tax wrappers and anything earned inside those bad boys are not taxable anyway.


And finally, if your total income is below the good ol personal allowance, there will be no tax to pay.


That is it for a quick rundown! Keep an eye out for another 'fun' and 'interesting' tax info-blog.


Otis is a taxation filing software for UK individuals; see here for further details: https://otistax.co.uk/ and don't forget the 31 January tax return deadline!


*Please note the above content does not constitute tax, legal or regulatory advice and is not the view of Plend - please always seek external advice.