I have noticed that both my husband and I have had a deduction made to our tax codes for untaxed interest.

We are both only in receipt of company pensions and are entitled to the standard rate of tax-free income so surely should be allowed £1,000 personal savings allowance.

Interest received in both cases is less than this allowance. In my case I only receive £7,000 a year in pensions so this makes any deduction even stranger.

Can you please advise if this is a common problem. I know in my case it doesn't make any difference to my income but my husband is now paying a small amount of tax which I believe is incorrect.

My husband wrote to HMRC last year about this but has never received a response from them.

Steve Webb replies: I always encourage people to check their tax code, and in doing so you have spotted something which seems to be a bit of a mystery.

People who pay basic rate tax are entitled to a Personal Savings Allowance of £1,000 per year over and above their standard personal allowance of £12,570.

This means that things like savings interest of less than £1,000 per year can effectively be ignored when their tax is worked out.

For higher rate taxpayers the PSA is £500 and for additional rate taxpayers it is zero.

You can read more about what the PSA covers here: Tax on savings interest - How much tax you pay.

Given that both you and your husband have annual savings interest under £1,000, it is hard to see why the notice of coding that you received and that your husband received had a deduction for ‘untaxed savings interest’.

This reduced your tax-free amount and, in your husband’s case, resulted in him paying a small amount of income tax when nothing was due.

I contacted HMRC about your case and your husband’s case and they have been able to shed light on what is going on.

In your case, the situation is relatively simple.

As you have explained, your main taxable income (your company pension) is well below the standard tax-free threshold.

As a result, even if your untaxed savings interest was added, you would not be over the standard personal allowance.

This means that you do not ‘need’ the Personal Savings Allowance to be included in the calculation as you would pay zero tax in any case.

In other words, although it would be clearer if HMRC had either excluded your savings interest or included the Personal Savings Allowance on your Coding Notice, not doing so hasn’t made any difference.

But for your husband the situation is a bit more complicated.

In his case, they also took money off his standard tax-free allowance for untaxed interest, and at the end of the year he had paid a small amount of tax.

This would not have happened if they had applied the PSA as well.

When I contacted HMRC they said that what happened in this case was that your husband’s taxable income for the year aside from his savings interest turned out to be higher than they expected.

Had they forecast this correctly, they would have included the PSA in the coding notice and no tax would have been deducted.

In the end, all of this should ‘come out in the wash’. At the end of the year, for your husband they add up his company pension and untaxed interest, deduct his standard personal allowance and PSA and conclude he should have paid zero tax.

This means he is owed a small tax refund for the year and this should be returned to him automatically a few months into the new tax year.

An HMRC spokesperson said: 'We don't want anyone to overpay or underpay tax, so we update tax codes based on the most recent data available and work with financial institutions to get information in as close to real time as possible.

'Your reader’s tax code is correct, and we’ve written to apologise to her husband and updated his tax code, meaning he will receive a refund for any overpaid tax.'