Underpayment letter from HMRC - How do they estimate savings interest due?

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  • Mikeyorks
    Mikeyorks Posts: 10,369
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    vacheron wrote: »
    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.

    Yes - they are provided with the detail of all interest yielding accounts. But - still appear not to have got round to being able to use that data as a standard.

    For example - the only P800s where I have seen interest included, is where that interest already exists in Coding. Such as your case.

    Where they've Coded it out but don't ask for SA Returns - either you should provide an update or they issue a P810 (single sheet PAYE return) periodically. Have they never requested an update?
    For your P800s ..... the 50% increase is clearly an estimate. Just provide realistic figures?
    If you want to test the depth of the water .........don't use both feet !
  • AirlieBird
    AirlieBird Posts: 1,046 Forumite
    vacheron wrote: »
    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.
    Whilst it is your responsibility to inform HMRC of any additional tax due on savings interest they do receive details of all interest and tax paid on taxable deposit accounts - but it can be difficult to match that information to a taxpayer as you don't provide your NI number to the savings provider.
    Did you really mean to put loose?
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  • zygurat789
    zygurat789 Posts: 4,263
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    AirlieBird wrote: »
    Whilst it is your responsibility to inform HMRC of any additional tax due on savings interest they do receive details of all interest and tax paid on taxable deposit accounts - but it can be difficult to match that information to a taxpayer as you don't provide your NI number to the savings provider.

    It is neither the job of HMRC to match your interest to your tax records which, even with an NI number would be an horrendous exercise given the opportunity for error in 9 digits, nor should they. It is, and has been for a long time, the duty of the tax payer to inform HMRC and failure to do so may be penalised.
    If HMRC find they haven't been told they will estimate and the taxpayer has to provide proof of actual interest received.
    The only thing that is constant is change.
  • zygurat789
    zygurat789 Posts: 4,263
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    vacheron wrote: »
    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! :D

    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.)
    /QUOTE]

    All of this discussion is only relevant when your income crosses the rate bands.
    So long as your income is greater than the personal (age) allowance
    and not greater than the level at which the allowance is reduced to the basic PA then there is no problem and no need to inform HMRC.
    The only thing that is constant is change.
  • AirlieBird
    AirlieBird Posts: 1,046 Forumite
    zygurat789 wrote: »
    It is neither the job of HMRC to match your interest to your tax records which, even with an NI number would be an horrendous exercise given the opportunity for error in 9 digits, nor should they. It is, and has been for a long time, the duty of the tax payer to inform HMRC and failure to do so may be penalised.
    I think you'll find I said exactly that:
    AirlieBird wrote: »
    it is your responsibility to inform HMRC of any additional tax due on savings interest
    But of course it is HMRC's job to match your interest to your tax records. They are responsible for collecting the correct amount of tax and ensuring that everybody pays the right amount of tax. And I can assure you they do match savings data to tax records.
    Did you really mean to put loose?
    Lose: no longer possess, not to retain, unable to find
    Loose: not firmly or tightly fixed in place
  • System
    System Posts: 178,077
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    AirlieBird wrote: »
    And I can assure you they do match savings data to tax records.

    Eventually.

    In the meantime they estimate the amount based on previous years and if the taxpayer doesn't tell them the figure in the tax code is wrong then they continue estimating.

    This is very simple to correct. Send them details of the interest received in the relevant years and they will re-reconcile those years for you.
  • Mikeyorks
    Mikeyorks Posts: 10,369
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    Pam17 wrote: »
    Eventually.

    I'm astonished HMRC continue to accept the TDSI returns on whatever media is chosen - including paper! A few years ago it looked as though they were tightening up .... so I assumed they were working to link the database to SA and the new PAYE system.

    But they now look to be as far away from that as when TDSI was first introduced. Very bemusing. As there's not a small amount of tax involved.
    If you want to test the depth of the water .........don't use both feet !
  • John_Pierpoint
    John_Pierpoint Posts: 8,391
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    vacheron wrote: »
    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! :D

    Tax year 10/11 was the first when HMRC acquired the right to impose a penalty of £100 for failing to make a return even when that return (eventually) showed no tax owing.

    I think we have all been warned that it is foolish to not understand the tax system and assume that everything is in order.
  • vacheron
    vacheron Posts: 1,596
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    edited 14 March 2012 at 2:14PM
    Quick update from the OP for anyone interested:

    I have now contacted the six banks I had taxable savings with over this period and have requested paper copies all of my end of year tax statements for 2007-2011. Five managed to arrange this immediately and two were able to provide the figures over the phone. The only disappointment was Halifax who apparently can't see closed accounts on their systems and so I have to go into my branch and order them over the counter. :angry:


    This impetus to go over my past tax affairs in detail has given me further cause to question HMRC's workings for the following reasons:
    • For both tax years in question, the interest they stated I had earned in my P800 was wildly different (significantly higher) than the assumption they made on my coding notice at the beginning of the exact same year. Neither of these figures are correct, nor based on anything approaching reality.
    • They managed to state my personal allowance incorrectly on my coding notice for 2008-9 stating it was £5435, when the correct figure for that year (from the table kindly provided by them in the same envelope they sent me the demand in!) is £6035
    • Confusingly, the tax codes they provided on my coding notices for 2008-09 and 2009-10 were different to the tax codes on my P60 for these years. My employer looked into it and determined that, despite HMRC sending me coding notices every year stating the code they would be sending to my employer, they were never actually sent to them. Blissfully unaware of the changes, my employer continued to use the last code they were sent, which was for 07-08. They then simply increased this code to account for personal allowance increases in each subsequent year. This only stopped when they finally recieved a new code from HMRC for 2010-11 (this was just after I had called HMRC and asked them to change my code because of my ofset mortgage) which my employer then duly applied.

    I realise and anticipated that there may be a few responses stating that it is my responsibility to check my tax status, and I probably might have said the same thing to people who post in other MSE forums where I am more knowledgeable.

    All I can offer in my defence is that many of us on PAYE don't deal with tax issues regularly and so I think my biggest mistake was trusting that the highly specific and annually changing figures presented to me as fact for all these years were correct.
    If the coding notice had said "Savings ESTIMATE" I certainly would have done so!

    I also trusted that the new code I was receiving annualy was diligently being sent to my employer. Rest assured that this is a lesson learned and a mistake of misplaced faith which I won't be making again! :)
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  • Mikeyorks
    Mikeyorks Posts: 10,369
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    vacheron wrote: »
    They managed to state my personal allowance incorrectly on my coding notice for 2008-9 stating it was £5435

    The Coding notice was correct when issued. As £5435 was the basic PA at the start of the year. Gordon Brown added £600 to it in the Sept as part compensation for the furore surrounding the abolition of the 10% tax rate. So your P60 should show Code 603 whereas the P2 will correctly show 543.
    My employer looked into it and determined that, despite HMRC sending me coding notices every year stating the code they would be sending to my employer, they were never actually sent to them.

    The P2 does mildly prompt you to check the employer is using the Code issued to you. ;) As most copies to the employer (P6) are issued electronically I always find it odd that so many allege non receipt. Strangely it rarely seems to be the other way around - where the employer gets a copy and the employee is oblivious?
    I also trusted that the new code I was receiving annualy was diligently being sent to my employer.

    So does it distil to the fact that the underpayments are because the wrong Code was used? Despite that appears to be countered by the fact the interest coded out on the P2 (only) you received - is much less than that used on the P800s?
    If you want to test the depth of the water .........don't use both feet !
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