Additional tax from savings

Ximian

I was speaking to a colleague earlier today about savings accounts and the low interest that banks are paying and the conversation moved on to taxes. My colleague mentioned that she has been a higher rate taxpayer for the past 7 years and has had savings with various banks but has never declared any additional income to the HMRC. I mentioned that she's liable for additional tax and that she should contact the HMRC as soon as possible about her savings and interest earned. She's concerned that she might have to pay a fine for not declaring her savings.

Is she likely to receive a fine?
She also doesn't have full records of all her savings, she had savings with Icesave many years ago and doesn't have any paperwork for Icesave. Will the HMRC have records of those savings and taxes paid so that she will know exactly how much tax is owed?
Will she have an option to pay the interest owed as a lump sum instead of a Tax code adjustment?

TIA

Savvy_Sue

Well, whatever the penalties (and I'm afraid I don't know), they will be lower if she 'fesses up than if she waits for them to find her.

TheCyclingProgrammer

She will be able to pay what is owed plus any penalties as a lump sum. If she disclosed fully HMRC may choose not to issue a penalty but there will be interest to pay.

How much are we talking? Depending on how much savings income she has, she may be able to have the tax collected through her tax code going forwards but if over a certain amount (can't remember how much) she may have to register for self assessment.

xylophone

http://www.hmrc.gov.uk/taxon/bank.htm

Spidernick

It depends on how much interest she's receiving. If it's £100 gross with another £20 tax to pay then that is within HMRC's 'tolerances' and they won't be particularly bothered as it would cost more than that to collect. I'm not sure at what point HMRC would be interested mind.

Ximian

Thanks for the replies all.
@TheCyclingProgrammer: I'm not sure how much interest she has received over the past few years, but she mentioned that the interest earned on her savings was over £500 last year and she says that this has been the case for the past 7 years. I'm guessing she's going to have to pay a healthy sum to the HMRC. Tax on a rough figure of £500 @ 20% = £100 x 7 years, plus interest and fines

HarryD

A full disclosure and apology, as suggested above, sounds like the best idea. It's not worth the worry expecting a 'knock at the door' for such a relatively small amount. Write to them perhaps along the following lines:

"I've recently realised I should have been telling you about interest I've received. Apologies for not doing so for the last n years. Please find below the net amount of bank interest I have received in each of these years:

2013-2014 £nnn

etc."

Note you report the net amount, which is the amount you actually received. The bank will have paid the basic rate tax for you.

I would be surprised if they fine you given this kind of disclosure and the relatively modest amounts involved.

There must be thousands of people in the same boat, given the large number recently drawn into the 40% band.

My wife is a 40% taxpayer: each year she writes a letter saying how much interest and dividends she has earned. If your tax affairs are simple i.e. salary plus interest and dividends, a letter rather than filling in a self assessment suffices. (Though you might find they now start sending your friend a self assessment form.)

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