Tax certificates & closed accounts

Manxman_in_exile · 7 October 2016 at 6:18PM

Is it standard practice for banks to exclude details of accounts closed during the year when issuing tax certificates at the end of the tax year?

A family member opened a one year savings bond several years ago. Lets say it expired on 31 December. On maturity one of the options was to allow the bond to renew for a further 12 months. This is what they did, although they did not appreciate that this involved the bank closing the old bond and creating a new one with a different account number. They allowed this to happen for several years.

The tax certificates for each tax year only show interest and tax for the new bond created on 01 January. They do not detail the nine month's interest earned and tax deducted in that financial year for the closed bond/account.

Unfortunately, this family member pays higher rate tax and has used their tax certificates to declare interest earned and tax paid. Which is what they (and I) thought they were meant to use.

Have they used the wrong information or has the bank made a mistake here?

What's the point of a year end tax certificate if it doesn't include all the interest earned and tax deducted in the year? The bank has, after all, paid the interest and deducted the tax in that year.

(PS - my relative has already notified HMRC of a possible under-declaration as they work in a profession where they don't want to have any "problems" with the taxman. They're also scrupulously honest.)

MoneySavingUser · 7 October 2016 at 8:21PM

I don't know if it is standard practice but unfortunately some of them do seem to do this. They should have also sent a statement on closure so it pays to double check this against the end of year statement.

Manxman_in_exile · 7 October 2016 at 11:02PM

Thank you for your reply.

I think you are suggesting that banks shouldn't do this, but that they do.

But why?

As I said in the OP, the bank has paid the interest and they've deducted tax at 20%. What business advantage do they gain by not stating on tax certificates all of the interest you've earned and tax deducted?

I presume that HMRC can reconcile tax deducted from savings accounts back to your NINo. and PAYE reference no.

If HMRC can do that, why would a bank want to alienate customers by intentionally under-notifying them of the true amount of tax earned during the tax year(s)?

polymaff · 8 October 2016 at 7:21PM

Manxman_in_exile wrote: »

I presume that....

Perhaps that is a clue.

Presume NOTHING. When you ask - and you should ask - banks for such statements - be explicit. At the end of each tax year I ask all the banks I deal with for such statements for all accounts which have received interest in the entire financial year ending 5th April 2016 - or whatever. And I make sure that I know which accounts to expect them to certify.

When the certificates start to turn up I check that they have covered the expected period. I then check that tax deducted equals gross paid minus nett paid (shouldn't be necessary in future!) and that the tax deducted is the gross paid times the interest rate. Then I push them for the ones they've failed to deliver - and repeat all of the above checks.

Shouldn't be necessary - but it is. For the year ending 5th April 2016, I received four certificates which failed the arithmetic test, two that did not cover interest received in the first month of the year - and I had to push one bank FOUR times to certify ALL accounts held.

Which was an improvement on the previous year

Presume nothing. In this life, the meek inherit no, or worthless, data.

Manxman_in_exile · 8 October 2016 at 8:13PM

Thanks. I'm old enough to know not to assume anything I should check myself, but my relative innocently thought that the tax certificates received from their bank each year would include all the interest earned on all their accounts.

I advised them to ask for tax certificates for each affected tax year to be re-issued for "all" of the accounts they held in those years. They followed my advice and the certificates have now been received.

The new certificates still don't show interest and tax on the closed accounts.

polymaff · 8 October 2016 at 8:29PM

polymaff wrote: »

...all accounts which have received interest in the entire financial year ending 5th April 2016 - or whatever.

rather than

Manxman_in_exile wrote: »

... for "all" of the accounts they held in those years.

Should focus their efforts.

EDIT: Incidentally, you seem to imply that the party concerned gets a single report covering several accounts with the same institution. I though that this very sane policy died out about 20 years ago. We are talking form s975, aren't we?

Manxman_in_exile · 8 October 2016 at 11:15PM

Hi Pollymaf and thanks.

I have no idea what s595 refers to?

Also (and I apologise if I'm missing something subtle here - perhaps you could spell it out more clearly for us if we are) but how was my relative mistaken in asking for tax certificates (plural) for all (emphasis) accounts held during the relevant tax years?

I ask because you suggest they should have asked for details of "...all accounts which have received interest in the entire financial year ending ..."

Why is that more clear (or more fiscally significant) than asking for interest and tax details "for all of the accounts they held in those years", having specified the relevant tax years?

Are you saying that banks would reasonably interpret the former statement to include accounts that had been closed during the tax year in question, but that accounts closed during the year would be excluded from the latter?

The normal English adjective "all" has a clear meaning to me, and that meaning is unqualified - it means "ALL".

I apologise if I seem arsey but I'm not sure how my relative rather than the bank is at fault here?

polymaff · 9 October 2016 at 10:17AM

Manxman_in_exile wrote: »

Hi Pollymaf and thanks.

Close

Manxman_in_exile wrote: »

I have no idea what s595 refers to?

Not so close. It is a form s975. This is the official document HMRC will recognise. Nowadays, banks etc. are tending to distribute an "Annual Summary" of accounts, which looks like an s975, but is not aligned to the the tax year and so can mislead.

Manxman_in_exile wrote: »

I ask because you suggest they should have asked for details of "...all accounts which have received interest in the entire financial year ending ..."

Why is that more clear (or more fiscally significant) than asking for interest and tax details "for all of the accounts they held in those years", having specified the relevant tax years?

Because, for the purposes of completing an Income Tax Return, that is EXACTLY what you want. You surely don't dispute that you want to give the bank as brief and succint a requirement as possible?

Manxman_in_exile wrote: »

The normal English adjective "all" has a clear meaning to me, and that meaning is unqualified - it means "ALL".

Do you just want to rail against the rain, or borrow the umbrella I'm offering you?

Manxman_in_exile wrote: »

I apologise if I seem arsey but I'm not sure how my relative rather than the bank is at fault here?

Like I said, do you want your relative to get (another) soaking, or take the umbrella proffered?

Manxman_in_exile · 9 October 2016 at 1:01PM

OK - thanks.

And thanks for the umbrella!:)

Manxman_in_exile · 10 October 2016 at 12:29PM

Thank you again Polymaff. (Sorry about earlier post but, others tell me, I'm very bad with names).

It's raining here so the umbrella will be employed!

I'm drafting a letter to the bank using your suggested wording. (I'm retired so it gives me, or my relative, something for me to do). If it doesn't produce the desired result I shall update.

Or I will do anyway as the wording will have worked. Which others may find helpful.

Tax certificates & closed accounts

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