am i supposed to pay tax?

[JPreston]

It is

Apparently my mistake was to think that actual professional knowledge and qualifications gained in excruciatingly dull real life may be worth bringing into a thread specifically about tax

Yeah OK then Saracen, let's all just go with what you reckon instead.

[schmunk]

And I thought accounting was boring!

It is, but tax is great!

[jackvdbuk]

ok it seems ISA's are FTW, the NS&i isa account has 6.3% interest but i cant seem to find out what the rules regarding withdrawals are, i could be needing it for a holiday in about 10 months time or so (not actually set it stone or decided.) would this be that much better than getting a 6.3%~ normal account (birmingham midshires)

really i want access if i really do need it but dont mind not getting interest for that month due to a withdrawal

[JPreston]

AFAIK typical cash ISAs don't have restrictions on when you can take your money out, or at least it's easy enough to find ones which don't. The main thing to remember is that you can 'waste' part of your allowance by taking out funds that you will then unable to pay back in. Of course if you don't have an ISA at all, then you are already wasting 100% of your allowance each year.

TBH in the short term a cash ISA is not going to be radically different to a savings account, except that maybe that birmingham midshires savings account is quoting its interest rates gross so it may not be comparable directly. The benefit of an ISA comes into play in the medium term, after you saved up a few years' worth of allowance you will have accumulated a reasonable pot of cash that will continue to pay tax-free interest (for as long as the govt allow ISAs to continue....FWIW I think they have announced their conitnued support for ISAs for a few years yet), whereas any normal savings account will see you paying more and more tax as your investment grows. I.e on what you pay in this year, you don't just save tax this year, you save tax every year until you withdraw it.

If you go into any high street bank or building society they will have someone falling over themselves to get you to sign up for one or the other, and they will be able to explain everything

[Saracen]

Apparently my mistake was to think that actual professional knowledge and qualifications gained in excruciatingly dull real life may be worth bringing into a thread specifically about tax

Yeah OK then Saracen, let's all just go with what you reckon instead.

I did not disagree with what you said about tax. I disagreed with what you said about what I said, which was that I had already said it was a simplification. Your "actual professional knowledge and qualifications gained in excruciatingly dull life" don't give you a God-given ability to determine what is simplified or overcomplicated.

And on the subject of professional knowledge and excruciatingly dull real life, I did my Chartered Accountancy exams with Thornton Baker (long before the name was changed to Grant Thornton to reflect the merger) back in the early 80s and have been dealing with the Inland Revenue for a quarter of a century. Is that "excruciatingly dull" enough for you?


JPreston, you are entitled to your opinion. I'm entitled to mine. You're entitled to disagree with me. But I'm also entitled to disagree with you, which is a point that seems to be escaping you right now. I have NEVER said everyone has to go with what I reckon. But I don't have to accept your opinion of my level of complication either.

So knock off the patronising remarks and rolleyes.

[Taz]

Interest on savings is taxable unless you have a mini-cash ISA. If you are a basic-rate taxpayer then the bank will usually deduct tax from your interest on your behalf. If you are a higher-rate taxpayer then you have to declare the interest received to the tax office as the bank only deducts interest at the basic rate. Hence, you have to pay more tax. This is also the case if you sign up for gross interest - this simply means that the bank will not deduct tax on the interest on your behalf, you will have to declare the income received via interest to the tax office. It is simply another form of taxable income (unless your total earnings fall below the minimum tax threshold).

Now, it is no good trying to hide income earned via interest on your savings accounts. The tax office will know about it. They may wait a year or two and then ask you about it. At that point they will charge interest on the tax you owe. I have fallen foul of this as I had a dormant account with Cahoot many years ago. It only had a few quid in it so the interest I earned over a 2-year period amounted to around £3!

I had totally forgotten about that account as I thought it was empty. Three years after I though I had cleared that account out I got a letter from the Inland Revenue asking me about 'income earned from other back accounts'. It was a polite letter and not accusatory in any way. I called them up and they told me about that bank account, right down to the current balance! I had to pay three years worth of interest on top of the tax that I owed on that account. It was only a few quid but it was a lesson learned that the Inland Revenue know more about your finances than you may do!