Underpayment letter from HMRC - How do they estimate savings interest due?
vacheron
Posts: 1,603 Forumite
Hi all.
I'm hoping that someone who understands the inner workings of HMRC will be able to assist me with this one:
Yesterday I recived a letter from HMRC claiming that I have underpaid tax in the years 2008-2009 and 2009-2010.
Background:
During 2008-2010 I was a 40% tax payer and, as my salary was taxed by my employer as PAYE, I can only assume they believe that their claim of underpayment comes from unpaid tax on savings interest.
The only time I have ever been asked to complete a tax return was for 2006 where I declared my 2005-2006 savings interest, the additional tax due was then recovered by HMRC reducing my tax code. No arguments from me there.
I then continued using this reduced tax code until 2011 when I called HMRC and asked that my full personal allowance be reinstated as I had arranged an offset mortgage and so would no longer be "earning interest" on any savings.
Whether this peeved them
and caused them to look closer into my affairs I'm not sure, however for whatever reason they now claim an underpayment by me of £949.24 over the two year period 2008-2010 which they intend to recover by reducing my tax code again from 810L to 573L.
Now finally to my question:
Looking at the income they listed as "Bank and Building Society Interest" for the two years, I noticed that the interest they stated I earned in 09-10 year was larger than that given for 08-09. Dividing of the two amounts (£2917 and £4375) showed that the 09-10 value was conveniently and exactly 50% higher than the previous year. This is despite the interest rate crashing in the early half of 2009 by 75%.
This therefore looks to me like no more than a guess by HMRC on my savings for that year. Do HMRC have access to this information via my NI Number and can I assume that they are correct, or is this just a guess on their part and I'll have to prove that they are incorrect by finding (and ordering where necessary) my end of year tax statements from all the institutions in which I held savings over this period? (about 5 different institutions and 10-12 different accounts)!
Any advice would be appreciated.
I'm hoping that someone who understands the inner workings of HMRC will be able to assist me with this one:
Yesterday I recived a letter from HMRC claiming that I have underpaid tax in the years 2008-2009 and 2009-2010.
Background:
During 2008-2010 I was a 40% tax payer and, as my salary was taxed by my employer as PAYE, I can only assume they believe that their claim of underpayment comes from unpaid tax on savings interest.
The only time I have ever been asked to complete a tax return was for 2006 where I declared my 2005-2006 savings interest, the additional tax due was then recovered by HMRC reducing my tax code. No arguments from me there.
I then continued using this reduced tax code until 2011 when I called HMRC and asked that my full personal allowance be reinstated as I had arranged an offset mortgage and so would no longer be "earning interest" on any savings.
Whether this peeved them
and caused them to look closer into my affairs I'm not sure, however for whatever reason they now claim an underpayment by me of £949.24 over the two year period 2008-2010 which they intend to recover by reducing my tax code again from 810L to 573L.Now finally to my question:
Looking at the income they listed as "Bank and Building Society Interest" for the two years, I noticed that the interest they stated I earned in 09-10 year was larger than that given for 08-09. Dividing of the two amounts (£2917 and £4375) showed that the 09-10 value was conveniently and exactly 50% higher than the previous year. This is despite the interest rate crashing in the early half of 2009 by 75%.
This therefore looks to me like no more than a guess by HMRC on my savings for that year. Do HMRC have access to this information via my NI Number and can I assume that they are correct, or is this just a guess on their part and I'll have to prove that they are incorrect by finding (and ordering where necessary) my end of year tax statements from all the institutions in which I held savings over this period? (about 5 different institutions and 10-12 different accounts)!
Any advice would be appreciated.
• The rich buy assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
Robert T. Kiyosaki
0
Comments
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Before getting into the fine detail with them, simply send a 'prove it' letter. Ask them to show their workings.
A friend who works for HMRC tells me that is often enough to stop them dead in their tracks - either they can't, or it's not cost effective to do so."Never underestimate the mindless force of a government bureaucracyseeking to expand its power, dominion and budget"Jay Stanley, American Civil Liberties Union.0 -
Thanks WhiteHorse.
It certainly seems like the values they have quoted are at odds with the reality of the interest rates available in those years, so I will try as you suggest.
I have no issue with paying any tax which may be due, but not on a figure which seems to be nothing but an exact 50% increase in the previous years figure... which in itself seems also to be nothing but a guestimate!
If this is the case, the worst part is them passing the result off as fact with a tax demand... even the gas company have the decency to put an (e) after any figures they have arrived at themselves without the availability of any actual facts!• The rich buy assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
Robert T. Kiyosaki0 -
Yes HMRC do have access to this information as every year every Bank/Building Society, by law, notify HMRC of every account to which gross interest has been paid (interest with no tax deducted).
If you are a taxpayer all interest must be paid net (after the deduction of tax)
You should not get gross interest and pay any tax at the end of the tax year or when you submit your SA Return.Hi all.
I'm hoping that someone who understands the inner workings of HMRC will be able to assist me with this one:
Yesterday I recived a letter from HMRC claiming that I have underpaid tax in the years 2008-2009 and 2009-2010.
Background:
During 2008-2010 I was a 40% tax payer and, as my salary was taxed by my employer as PAYE, I can only assume they believe that their claim of underpayment comes from unpaid tax on savings interest.
The only time I have ever been asked to complete a tax return was for 2006 where I declared my 2005-2006 savings interest, the additional tax due was then recovered by HMRC reducing my tax code. No arguments from me there.
I then continued using this reduced tax code until 2011 when I called HMRC and asked that my full personal allowance be reinstated as I had arranged an offset mortgage and so would no longer be "earning interest" on any savings.
Whether this peeved them and caused them to look closer into my affairs I'm not sure, however for whatever reason they now claim an underpayment by me of £949.24 over the two year period 2008-2010 which they intend to recover by reducing my tax code again from 810L to 573L.
Now finally to my question:
Looking at the income they listed as "Bank and Building Society Interest" for the two years, I noticed that the interest they stated I earned in 09-10 year was larger than that given for 08-09. Dividing of the two amounts (£2917 and £4375) showed that the 09-10 value was conveniently and exactly 50% higher than the previous year. This is despite the interest rate crashing in the early half of 2009 by 75%.
This therefore looks to me like no more than a guess by HMRC on my savings for that year. Do HMRC have access to this information via my NI Number and can I assume that they are correct, or is this just a guess on their part and I'll have to prove that they are incorrect by finding (and ordering where necessary) my end of year tax statements from all the institutions in which I held savings over this period? (about 5 different institutions and 10-12 different accounts)!
Any advice would be appreciated.0 -
The onus is on you to declare taxable income to HMRC. You should have told them the interest you received on your savings each year. Just because they have not sent you a tax return does not excuse you from this duty.
You have not told them so they think you are happy with the earlier figure ie you have received more, so how much more should they estimate you have received? It seems they got that figure right.
After all they are not to know that you didn't win the lottery and stick it all in a savings account!The only thing that is constant is change.0 -
Yes HMRC do have access to this information as every year every Bank/Building Society, by law, notify HMRC of every account to which gross interest has been paid (interest with no tax deducted).
But I don't think the OP is saying that they haven't paid any tax on their savings - simply that, because they are a 40% tax payer, they should be paying more than the standard 20% deducted by the bank/building society. As zygurat789 says, it's really the taxpayers responsiblity in this circumstance to contact HMRC and declare how much interest they have recieved and how much tax has been deducted, as HMRC will not know themselves.0 -
I was replying to this question
Do HMRC have access to this information via my NI Number and can I assume that they are correct,p00hsticks wrote: »But I don't think the OP is saying that they haven't paid any tax on their savings - simply that, because they are a 40% tax payer, they should be paying more than the standard 20% deducted by the bank/building society. As zygurat789 says, it's really the taxpayers responsiblity in this circumstance to contact HMRC and declare how much interest they have recieved and how much tax has been deducted, as HMRC will not know themselves.0 -
Yes HMRC do have access to this information as every year every Bank/Building Society, by law, notify HMRC of every account to which gross interest has been paid (interest with no tax deducted).
If you are a taxpayer all interest must be paid net (after the deduction of tax)
You should not get gross interest and pay any tax at the end of the tax year or when you submit your SA Return.
Hi antonic.
I think you may have misunderstiood my position a little as I do not recieve any interest gross.
I pay tax net on all my taxable savings accounts, however I am also obliged to pay a further 20% on these savings as I was a higher rate tax payer during the period in question. This usual way to declare the need for the extra 20% savings interest tax is on your end of year tax return.
My question referred to whether the exact details of the interest I paid @ 20% on my savings accounts are used/available to HMRC when they calculated my additional 20% tax owing as the numbers they are quoting are suspiciously mathematical and I am convinced that I did not recieve as much interest as they claimed I did. (The interest I was earnig fell from 7% in 2008 to 1.75% in 2009, however HMRC claim the interest recieved in 2009 was exactly 50% higher than in 2008 and so clearly seems just to have been "guessed" by them!
:EDIT: Just noticed poohsticks responded while I was replying and assumed correctly, so apologies for any repeated info.• The rich buy assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
Robert T. Kiyosaki0 -
...
My question referred to whether the exact details of the interest I paid @ 20% on my savings accounts are used/available to HMRC when they calculated my additional 20% tax owing as the numbers they are quoting are suspiciously mathematical and I am convinced that I did not recieve as much interest as they claimed I did.....
All interest gets reported to the HMRC Centre for National Information in Llanishen so they should have the exact numbers.
You can always check your statements to see whether they are actually using the right data.0 -
zygurat789 wrote: »The onus is on you to declare taxable income to HMRC. You should have told them the interest you received on your savings each year. Just because they have not sent you a tax return does not excuse you from this duty.
You have not told them so they think you are happy with the earlier figure ie you have received more, so how much more should they estimate you have received? It seems they got that figure right.
After all they are not to know that you didn't win the lottery and stick it all in a savings account!
Hi Zigguraut.
I filled in the first tax return in 2006 after HMRC sent me a "notice of coding" which, upon completing the tax return they subsequently requested, they then sent me a letter stating (Quote) "Upon analysing your financial situation we will not be asking you to complete a tax return in future, however if your circumstances change then you must inform us of this".
Since this time (2006) my interest income has, if anything, fallen significantly. In addition I have not claimed the additional tax back from my pension contributions which were paid net. So if anything I they should owe me a refund!
Because of this I was not concerned with immediately rectifying the situation because as, as far as I am aware, no-one gets into trouble for paying HMRC too much tax!
This is why I was surprised to find an underpayment claim from them which seems to have been based on the assumption of an ever increasing interest income despite interest rates crashing through the floor since this period. (The interest they assumed for 2008-09 is higher than I declared in 2006, and the 2009-10 assumption 50% higher again.)All interest gets reported to the HMRC Centre for National Information in Llanishen so they should have the exact numbers.
You can always check your statements to see whether they are actually using the right data.
Thanks antrobus.
I have spreadsheets here with the account names, the amount in the account, and the interest rate at the time to allow me to make an approximate guess, but not the actual end of year interest statements.
I'm going to have to crawl in the loft tonight and see if I can dig them out, but I have moved house twice since then, so it may be quite a hunt, If not I'll have to re-order dozens which is what I was afraid of!
Personally I would prefer it if they looked through all my accounts to come up with the correct figure. It would certainly make things a lot easier at our end and I have nothing to hide!
As responses seem to be mixed between "yes they can see all" and "no, you have to tell them" I'll give them a call and see what they suggest.
Thanks to all for your replies. :beer:• The rich buy assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
Robert T. Kiyosaki0 -
No problem !:)
I would check with your bank that they declared the right amount of interest to HMRC as they have got it wrong before.Hi antonic.
I think you may have misunderstiood my position a little as I do not recieve any interest gross.
I pay tax net on all my taxable savings accounts, however I am also obliged to pay a further 20% on these savings as I was a higher rate tax payer during the period in question. This usual way to declare the need for the extra 20% savings interest tax is on your end of year tax return.
My question referred to whether the exact details of the interest I paid @ 20% on my savings accounts are used/available to HMRC when they calculated my additional 20% tax owing as the numbers they are quoting are suspiciously mathematical and I am convinced that I did not recieve as much interest as they claimed I did. (The interest I was earnig fell from 7% in 2008 to 1.75% in 2009, however HMRC claim the interest recieved in 2009 was exactly 50% higher than in 2008 and so clearly seems just to have been "guessed" by them!
:EDIT: Just noticed poohsticks responded while I was replying and assumed correclty, so apologies for any repeated info.0
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