HMRC warning for people 'who have earned up to £500'

954000 basic rate taxpayers will be forced to hand over cash to HMRC, AJ Bell has found, after a Freedom of Information Act (FOI) request.

THOUSANDS of savers in the UK face a shock HMRC tax demand on their doorstep this year, it has been claimed. 954000 basic rate taxpayers will be forced to hand over cash to HMRC, AJ Bell has found, after a Freedom of Information Act (FOI) request.

In full, two million are set to pay - including higher-rate taxpayers. The personal savings allowance (PSA) allows basic rate taxpayers to earn up to £1,000 in interest tax-free, while higher rate taxpayers can earn up to £500 without paying tax.

AJ Bell warned more are being dragged in due to frozen tax bands and high interest rates. Laura Suter, of AJ Bell, said: "For those who have ditched and switched to get better rates and are now going to be hit with tax on their money, they often won't realise until a brown letter lands on their doormat." She added that those completing a self-assessment tax return will declare any savings interest and subsequent tax due.

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"Those filling out a self-assessment tax return will declare any savings interest, and subsequent tax due. But, for those taxed under PAYE, HMRC will calculate any tax due based on information sent to them by banks and building societies.

"It means many taxpayers will find there is a deduction made from their payslip each month, often before they’ve even realised they owe any money to the taxman." Setting out the reasons why more people are paying the tax, she said: "A tricky combination of interest rates rising, cash ISAs being shunned for decades, more people moving into higher tax brackets and seeing their Personal Savings Allowance cut, and the tax-free allowance being frozen means lots of people are being dragged into the tax.

"The figures are lower than previous estimates from the Government, which is likely due to a number of factors. We know more savers have used cash ISAs to protect their savings from tax, thanks to high-profile campaigns about the number of people who are likely to be hit with tax bills."

Ms Suter added: ""Bank of England data shows that April was a record-breaking month for cash ISAs, with £11.7billion being put in the accounts, marking the highest amount since ISAs were introduced in 1999. This trend has continued, with more individuals using ISAs post tax-year end to shield their cash from unwelcome tax."