Backdating taxes on interests which have accrued, but have not been paid

mr1974

I have just realized my girlfriend shouldn't have paid interests on her savings at Cahoot, because they are below her allowance for the 2004-2005 tax year. She is now sending a R85 to be classified as non taxpayer for the 2004-2005 tax year.
She opened the account 07/2004, and it's Cahoot’s policy to pay interests every year, so she hasn't received a single penny so far.
Let's pretend £300 pounds interests have accrued so far (as a side note: how does one find out?). I would have thought Cahoot would backdate the interests paid to reflect her 2004-2005 tax status. A Cahoot representative just told me this is not the case, and that she will stop paying taxes only when the form is processed, with no backdating.

I am not sure this is correct and would like to receive comments from someone knowledgeable...

Thanks,
MR

PS = Just realised, maybe she should ask them back to the IR?

MarkyMarkD

Either Cahoot are misleading you, and you are confused OR you are just confused!

Interest is taxable when it's paid, not when it's earned.

So if Cahoot haven't yet paid any interest to your girlfriend, she hasn't been charged any tax.

So as long as the R85 is NOW in effect, when they pay her her first ever lot of interest, it will not have tax deducted. The fact that it was partially accrued in 2004/05, but paid in 2005/06, is irrelevant - it was PAID in 2005/06 and is TAXABLE in 2005/06, or would be if she had not submitted an R85.

If your girlfriend will actually be over the tax threshhold in 2005/06, completing an R85 for Cahoot was inappropriate and wrong and she needs to revoke that R85 before they incorrectly pay her gross interest to which she is not entitled! You can't do an R85 for one tax year - it's effective until it's revoked.

However, if you expect her tax status to remain the same is 2005/06 as it was in 2004/05, all is well and she can receive gross interest next year.

Hope that helps.

mr1974

Thanks for your reply!
Of course it helps, it is the kind of clarification I needed.

Yes I think I was confused (without knowing it), but Cahoot did not help as well. They knew what her account conditions were, but didn't bother to explain the situation, given the meaningless question.

As a side thought how could I possibly get hold of this info? I have been crawling around for some time now, but did not see anything as specific about R85, accrued / paid interests and the like as what you have just written down.

Any good reference from your personal bookmarks… Ehm… Thanks again,

MR

MJSW

Try http://www.inlandrevenue.gov.uk/taxback/qanda.htm

deemy2004

mr1974 wrote:

I have just realized my girlfriend shouldn't have paid interests on her savings at Cahoot, because they are below her allowance for the 2004-2005 tax year. She is now sending a R85 to be classified as non taxpayer for the 2004-2005 tax year.
She opened the account 07/2004, and it's Cahoot’s policy to pay interests every year, so she hasn't received a single penny so far.
Let's pretend £300 pounds interests have accrued so far (as a side note: how does one find out?). I would have thought Cahoot would backdate the interests paid to reflect her 2004-2005 tax status. A Cahoot representative just told me this is not the case, and that she will stop paying taxes only when the form is processed, with no backdating.

I am not sure this is correct and would like to receive comments from someone knowledgeable...

Thanks,
MR

PS = Just realised, maybe she should ask them back to the IR?

Sounds like she will be paid interest on account anniversary hence it will fall in the 2005/06 Tax year and NOT 2004/05 - SO If she has taxable earnings in 2005/06 - then she cannot get her interest GROSS.

The point to remember is that the interest is taxed for the year in which it is paid. Regardless of how many months were in a previous tax year even if it means 11 months in 2004/05 and 1 month in 2005/06, even to be paid interest on 6th April 05 is enough to put the tax liability into the 2005/06 tax year.