Under rules introduced in 2016, financial institutions are required to report savers’ annual interest earnings directly to the tax authority. This allows HMRC to automatically adjust PAYE tax codes to claw back money owed on interest that exceeds the personal savings allowance.

However, an investigation by The Telegraph has revealed that HMRC is increasingly adjusting tax codes based on inaccurate data.

Errors include gross overestimations of untaxed interest, the duplication of interest figures, and the wrongful taxation of funds held in tax-free ISAs. In one extreme case, a worker’s personal allowance was reduced after HMRC estimated their taxable savings interest at £3,847 when the actual figure was just £94, leading to a tax overpayment of £1,476.

Financial advisers report a growing number of cases where the underlying data fed into PAYE codes simply fails to reconcile with actual savings.

While HMRC has reportedly been aware of systemic calculation issues since at least 2020, mistakes continue to impact the current tax year.

In response, HMRC stated that it updates tax codes using the latest information provided by financial institutions, adding that actual savings interest figures for the 2025–26 tax year will be confirmed in November.

An HMRC spokesman added: “Anyone who thinks the information we have is incorrect should let us know straight away so we can put things right.”