A data processing error at HM Revenue & Customs (HMRC) is causing incorrect tax code adjustments for UK savers, potentially reducing their take-home pay or leading to overpaid taxes, according to reports from multiple financial news outlets. The issue stems from HMRC's use of flawed savings-interest data provided by banks and building societies, which has resulted in erroneous PAYE coding notices.
The problem has been particularly acute for customers of Zopa, a digital banking platform, which acknowledged that a reporting error may have led to hundreds of its clients having their cash ISA interest incorrectly classified as taxable. Since ISAs are tax-free, this misclassification can result in undue tax deductions from wages or pensions.
Affected individuals may see their net pay drop before discovering the mistake. HMRC has advised taxpayers to contact the agency if they believe their tax records are inaccurate. A spokesperson stated that the department aims to ensure no one pays more or less tax than required and promised to rectify any errors.
Scope of the Problem
The Telegraph and GB News reported cases where HMRC used incorrect interest figures. In one instance, a taxpayer was told they had £3,847 in untaxed savings interest when the actual amount was only £94, leading to an overpayment of £1,476 for the 2025-26 tax year and a £200 monthly reduction in pay. The error was only corrected after the case was flagged.
Zopa discovered the mistake on October 7 and corrected the data the same day, but some customers still received unexpected tax bills. The broader issue involves double-counted interest, mismatched estimated interest, and cash ISA interest wrongly classified as taxable.
Systemic Issues and Implications
HMRC increasingly uses data from financial institutions to pre-fill tax accounts and adjust PAYE codes, aiming to reduce paperwork. However, when the underlying data is erroneous, the burden falls on taxpayers to identify and correct mistakes. Robyn Lovatt of Shackleton noted that savings interest figures are being incorporated into tax codes without clear breakdowns, forcing individuals to play catch-up with potentially inaccurate numbers.
Mike Warburton, a tax columnist, emphasized that taxpayers should verify HMRC's figures. The Low Incomes Tax Reform Group acknowledged that while HMRC's savings-interest data is often a reasonable starting point, it is not always final, and errors can arise from joint accounts, duplicate entries, or outdated estimates.
The risk cuts both ways: incorrect data can lead to overcharging savers or undercharging the government. Officials are pushing for more frequent reporting from banks, including quarterly updates and the requirement for customers to provide National Insurance numbers for interest-bearing accounts.
Future Tax Changes
The issue comes at a time when more people are facing tax on savings interest. The government plans to increase savings income tax rates to 22%, 42%, and 47% in April 2027, while the personal savings allowance remains unchanged, meaning the amount of interest that can be earned tax-free will not rise.
Savers are advised to compare their tax code with bank statements and ISA records. If the code includes interest that does not exist or counts cash ISA interest, they should contact HMRC and possibly the bank that reported the data.
