Tax on savings account (several years)

pendragon75

Hi,

I was looking for some advice on how best to deal with a tax issue. I've just been filling in my self-assessement for this year and realised that a savings account I have had for over 10 years has not had tax deducted. I believe it was initially set up for me when I was a teenager (around 1998) and still studying, so tax was not being deducted. However, I have been working full-time since 2006 and not realised that tax had not been deducted during that time (as the account has basically been dormant). I filled out a self-assessment last year and added the interest in for that year but otherwise don't think I have paid tax on these savings.In terms of total interest during this time I think it may be as high as a couple of thousand pounds, but would need to work this out.

I have been paying all income tax and other bank accounts etc, just overlooked the tax status of this account .

I was hoping for advice on two questions (please note I'm not trying to avoid paying the tax I owe, just want to know the best way to resolve it):

1. What is the best way to get it sorted with HMRC? Should I just go straight to an HMRC office or call them, or should I see an accountant etc for advice first?

2. Does anyone have idea about the penalties etc that would be involved - is there an online calculator I could use to work out how much I owe so I can ensure I am in a position to pay HMRC immediately?

Thanks a lot for your help.

kitty1801

You should contact HMRC first. There isn't really need to contact an accountant. You normally only need to complete a tax return re untaxed income (in this case your bank interest)if it exceeds £2500, so a tax return for previous years may not be required. I would send them a letter detailing the amounts received each year and they will let you know how much should be paid.

pendragon75

Thanks for your help Kitty, much appreciated.

p00hsticks

And as well as HMRC, you should contact the bank or building society involved to ensure that tax is deducted at source going forward.

jamesd

While you only need to submit a tax return for untaxed UK interest if it's over £2,500 you are obliged to tell HMRC about the interest each year.

In the circumstances there aren't likely to be any major consequences. A few hundred Pounds a year of interest just isn't a big deal. However, HMRC is allowed to recalculate your tax liabilities for every year where you revise your declaration.

Your biggest issue may be why you didn't correct the past years when you filed your SA return last year. That's when HMRC will assume you'd have known about it and should have told them, so you'll probably end up with a slightly higher penalty than otherwise. But still unlikely to be painful, my guess from past reading is a penalty, in addition to the back tax and interest, in the region of 30%-50% of the unpaid tax because it's you coming forward to tell HMRC and because the account was set up for you, not by you. So maybe 20-40% of a couple of thousand of interest in tax and another 5-20% of the couple of thousand in penalty. Also interest on the unpaid tax from when it was due.

HMRC does document its guidance for working out what penalties should be. In your case it's the Penalties for Failure to Notify rules that apply and here's an example of an unprompted (HMRC didn't ask) disclosure penalty calculation. If you read more you'll find that making a comprehensive and high quality disclosure - exact interest for each tax year, say - and doing it before HMRC asks make a huge difference to the penalty.