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  • FIRST POST
    vacheron
    Underpayment letter from HMRC - How do they estimate savings interest due?
    • #1
    • 12th Mar 12, 9:14 AM
    Underpayment letter from HMRC - How do they estimate savings interest due? 12th Mar 12 at 9:14 AM
    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.
    Last edited by vacheron; 12-03-2012 at 9:31 AM.
Page 2
  • Mikeyorks
    They managed to state my personal allowance incorrectly on my coding notice for 2008-9 stating it was 5435
    Originally posted by vacheron
    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 !
  • vacheron
    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.
    Originally posted by Mikeyorks
    Hi Mikeyorks. Thanks for clarifying that for me. I have amended my calculations to use the "post Gordon" allowance.

    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?
    Originally posted by Mikeyorks
    Sadly, (for them not me ) ... no.

    Their interest estimates are still way out and the calculations do not take into account my higher rate tax relief on my stakeholder pension contributions which I had not previously claimed, nor my charitable giving relief.

    Based on the calculations I have now completed using educated estimates of interest until the full figures arrive it looks like their claim of a 900 tax underpayment will in effect result in something in the region of a 1100 overpayment for the four tax years 2008-2011 inclusive.
  • zygurat789
    You should always keep track of your savings accounts, there is always another account paying a better rate of interest. You worked hard for this money, don't ignore it now. There are other forums on this subject - have a look.
    The only thing that is constant is change.
  • vacheron
    You should always keep track of your savings accounts, there is always another account paying a better rate of interest. You worked hard for this money, don't ignore it now. There are other forums on this subject - have a look.
    Originally posted by zygurat789
    Definately good advice but I've always kept on top of the best savings rate having always been a bit of a rate tart. (Partly the reason I wasn't looking forward to sorting out these tax issues was thinking how many institutions and different accounts I would have to collect the interest statement data from before I could do so).

    As much of my savings are now fully offsetting my mortgage rate at 3.49% I don't have to work as hard as I used to.

    What is most frustrating is looking back through my savings accounts from 2008 which have names like "7.9% Fixed 1 Year Saver"..... Bring back the good old days!

    Now, thanks to this forum, and also to the nice people at HMRC for sending me a tax demand large enough to give me the kick in the backside I needed to get this all sorted out, I am now far more Income Tax savvy too.

    After all, it's silly to spend time chasing an extra 0.1% ISA return while leaving a 20% pension tax relief unclaimed!
  • vacheron
    Hi All.

    Just a quick thread resurrection to provide an update for those who all who posted or followed the thread or who may search the forums for a similar problem in the future.

    I sent my caluclations to HMRC on the 3rd of April providing evidence of my tax situation rather than their uninformed guesstimate.

    On Friday the 27th of April I recieved a new notice of coding which reverted my 2012-13 tax code back to 810L, signifying that they no longer believed that I owed any historically underpaid tax.

    Then on the 1st of May I recieved a further letter from HMRC admitting that:
    • They had inaccurately estimated my savings interest.
    • They had failed to pass on coding changes to my employer between 2007 and 2011.
    • They had not taken into account the tax relief on my pension contribution rebate contained in my 2005 return to reduce my tax calculation estimate, but had chosen to use the interest figures given in the same return to increase it!
    Along with this letter was a set of revised P800 calculations. Their original claim that I owed them 949 had now changed to me being entitled to a 980.00 refund!

    So, in summary:.....
    Last edited by vacheron; 02-05-2012 at 12:08 PM.
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