The UK's tax authority, HMRC, has begun sending out revised tax codes to households across the country, a significant move occurring halfway through the 2025/26 tax year. This action primarily affects individuals with savings, as the government body adjusts codes to account for interest income.
Why Tax Codes Are Changing Mid-Year
According to guidance from HMRC and the charity Tax Aid, tax codes are not static. They can be updated part-way through the financial year if HMRC receives new information about a taxpayer's circumstances. A key trigger for these mid-2025 updates is interest earned on savings.
HMRC explains the process: "To decide your tax code, HMRC will estimate how much interest you’ll get in the current year by looking at how much you got the previous year." If the interest you earn exceeds your Personal Savings Allowance, you are liable for tax on the excess at your standard Income Tax rate. For those employed or receiving a pension, HMRC typically collects this tax automatically by adjusting your tax code.
The Importance of Checking Your Code
Tax Aid has urged taxpayers to take proactive steps. "You should therefore take action to review your tax code to ensure the tax deducted is as accurate as possible," the organisation advised. This is particularly crucial for individuals with multiple income streams.
"It is important to note that if you have more than one job or pension or both an employment and a pension, you should check that the tax code for each job or pension is accurate," Tax Aid added. Errors can occur if HMRC holds outdated or incorrect information about your income, potentially leading to an incorrect code and the wrong amount of tax being deducted.
What Happens Next and How to Respond
HMRC will send a tax calculation letter if an overpayment or underpayment is identified. Furthermore, your bank or building society will report the actual interest you received at the end of the tax year, which may lead to a final adjustment.
To ensure your tax code is correct, you must make certain HMRC has your up-to-date income details. HMRC will notify you and your employer or pension provider directly if they change your code. If you suspect an error, you should contact HMRC promptly to provide accurate information and prevent potential financial discrepancies later on.
