Tax on cash interest - cash or accrual basis or either?

coyrls

I am sure Bowlhead is technically correct but the practical result is still the same as Linton's simpler (if technically flawed) explanation.

David_Watts2

RG2015 said:

It is not quite as clear cut as that. I have some three year NS&I bonds where all the interest is paid out after three years. However, 12 and 24 months after opening, the annual interest was added to the accounts. Furthermore, these amounts were reported to HMRC in the relevant tax years.

PS. These accounts allow early access although one would lose 90 days interest by doing this. This is perhaps what gives rise to a potential annual tax liability.

I've just (earlier this month) renewed one of their Guaranteed Growth Bonds for another 3 years. My understanding is that, for the previous one that matured this year, the interest for each of the 3 years is taxable in the year when it was credited to the account but, for the new one that has just started the total amount of interest will all be taxable in the year the bond matures.
NS&I say this on their site:
 "Previously, we gave you access to your investment before the end of its term but charged a penalty equal to 90 days’ interest on any money you took out early. Now, once you’ve decided to renew a Bond on or after 1 May 2019, you won’t have access to your money until the Bond reaches the end of its new term."

And this in the product summary box:
"We add your interest without deducting any tax. However, the interest is taxable so it will count towards your Personal Savings Allowance in the tax year that your Bond matures."