Annual Interest Tax statements - chase for?

masonic

This illustrates the problem. Unless a provider states up front when interest will be treated as having been paid for tax purposes, or produces interest statements, the customer is none the wiser. It seems to be a relatively small number of providers who report all interest to HMRC at maturity.

GeoffTF

I have just noticed that a five year United Trust bank term account credited interest annually, and I have a paper tax certificate on file for just the final payment. I will have to log into my accounts and look for tax returns. If I had been getting it badly wrong, perhaps HMRC would have raised an issue.

masonic

GeoffTF said:

I have just noticed that a five year United Trust bank term account credited interest annually, and I have a paper tax certificate on file for just the final payment. I will have to log into my accounts and look for tax returns. If I had been getting it badly wrong, perhaps HMRC would have raised an issue.

Some people have certainly reported having been contacted by HMRC and invited to double check their calculations, but I expect there are so many minor discrepancies when people file that they couldn't possibly follow them all up and probably just focus on those that would result in significant underpaid tax. You might find that your payments balance out whichever way you play it, and the bank isn't necessarily taking the correct approach, it's just safer to make your own figures agree. For a 5 year account, you are not easily going to be able to go back and amend all of the relevant tax returns.

GeoffTF

Notepad_Phil said:

GeoffTF said:

masonic said:

GeoffTF said:

I do not wait for tax statements. I log in to each account when an interest payment is due and record the amount and the new balance. If a term account matures, I calculate the interest payment by subtracting the previous balance from the final payment. I have got over a dozen accounts. Chasing tax certificates would be a real pain. HMRC should get the same numbers. There is a consultation on automatically populating interest payments on tax returns. The main problem appears to be identifying the holder of each account. The banks will not necessarily have your National Insurance number, for example. It would make my life easier if these payments were automatically populated, and the default option was always to return all my money to my nominated account on maturity.

That's all well and good and I tend to do the same for providers who unhelpfully fail to provide the necessary documents, but how do you deal with providers that treat interest as having been paid at different intervals than credited to your account? For example, Zopa credit interest monthly on their fixed term accounts, but declare all of the interest as having been paid at maturity. If you go by statements you'd be attributing interest to the wrong tax year with such a provider. Other providers do not make it clear how they treat interest payments that are added to the balance of a fixed term account that are not available to be withdrawn.

I had assumed that interest is considered to be paid for tax purposes when it is credited to my account. I was wrong. I have found "SAIM2440 - Interest: taxation of interest: when interest arises".

"Example 2

Sam entered into a five year fixed-term bond on 6 April 2017.  The bond credits interest to Sam’s account annually on the 31 December.  Sam can only gain access to both the annual interest and the principal in advance of 5 April 2022 if a penalty is paid for early access.

Since the terms and conditions of the bond allow Sam to draw on the funds, although with a penalty, the interest arises and is taxable each year as it is credited.

If the terms and conditions of the bond did not allow access until maturity, the interest would arise and be taxed at that point."

It looks like I have got some fixing to do.

Hopefully not too much fixing as I would have thought that most fixed-term products allowed the option of annually (or even monthly) paying the interest out, and so even if you didn't choose that option then any taxation of interest would happen in the year that the interest was credited as the terms and conditions did allow access before maturity, you just chose not to.

That does indeed appear to be the case. I have just checked all the tax certificates for the term accounts that paid interest in FY 2020-21. The certificates all show the interest as being taxable in the FY that it was paid. I could not log into one of my accounts and phoned the bank. The lady who answered confirmed this interpretation. Panic over!

GeoffTF

I asked the same question elsewhere. The answer is to look at the legislation. The HMRC internal manual appears to be wrong. Interest is taxable when it arises, irrespective of whether you have access to it.

https://www.lemonfool.co.uk/viewtopic.php?f=49&p=460019#p460019

masonic

GeoffTF said:

I asked the same question elsewhere. The answer is to look at the legislation. The HMRC internal manual appears to be wrong. Interest is taxable when it arises, irrespective of whether you have access to it.

https://www.lemonfool.co.uk/viewtopic.php?f=49&p=460019#p460019

I don't think the manual is wrong, it just gives greater detail as to how HMRC interprets the legislation. "Arises" is not defined, and "irrespective of whether you have access to it" is not contained within the legislation. What you've done is favoured the interpretation of "arises" posted by someone on the lemonfool forum over the interpretation published by HMRC. Perhaps the lemonfool poster is correct, while HMRC and the savings provider are both incorrect, but I wouldn't stick my neck out.

Personally, I would avoid contradicting the information reported to HMRC by a FCA authorised firm that probably taken more legal advice to ensure compliance with the legislation than I have. This means using the figures provided in an annual tax statement when there is any ambiguity. This will allow you to sleep at night because any problem HMRC has with the figures on the tax statement gives you an avenue to raise a complaint against the savings provider and claim compensation for any loss suffered as a result.

You could always check with HMRC if they believe there is an error in their manual concerning this point. It's been saying that for at least a decade, so I'd have thought someone would have challenged it before now if it was wrong.

GeoffTF

I posted this on the Lemon Fool thread:

I have just spoken to my young neighbour, who, as it happens, is a tax adviser for a firm of accountants. The bottom line is do not worry, what I am doing is OK. She says that they just declare tax the on the compounded up interest when the bond matures. Nonetheless, HMRC will accept that I have already paid tax on the earlier years' interest, if I just pay tax on the final year's interest when the bond matures. As long as it tallies they will be happy. In other words, I can either pay tax on the interest payments annually or on maturity. It is all a bit of a mess. She said Skipton Building Society is still issuing statements saying that they have deducted 20% tax.

Daliah

GeoffTF said:

She said Skipton Building Society is still issuing statements saying that they have deducted 20% tax.

I have just had a look at my Skipton tax statements (which you can request online, and they generate them for you within 24 hours, but probs much faster). There is no mention of a 20% tax deduction. In fact, it says "Interest Paid Gross".

Skipton_Building_Society_Representative

 She said Skipton Building Society is still issuing statements saying that they have deducted 20% tax.

Hi Geoff, as far as we're aware this isn't quoted on our interest statements as all interest is paid gross. Unless the statement is being produced for a tax year prior to 16/17 of course. However, if you do spot this we'd encourage you to get in touch so we can investigate. 

masonic

GeoffTF said:

I posted this on the Lemon Fool thread:

I have just spoken to my young neighbour, who, as it happens, is a tax adviser for a firm of accountants. The bottom line is do not worry, what I am doing is OK. She says that they just declare tax the on the compounded up interest when the bond matures. Nonetheless, HMRC will accept that I have already paid tax on the earlier years' interest, if I just pay tax on the final year's interest when the bond matures. As long as it tallies they will be happy. In other words, I can either pay tax on the interest payments annually or on maturity. It is all a bit of a mess. She said Skipton Building Society is still issuing statements saying that they have deducted 20% tax.

That's useful to know. It could make the difference between people being covered by the Personal Savings Allowance, or being pushed into a tax liability.