Cynergy savings interest adjustment

AndyTh_2

Is it just me, or do you think Cynergy's interest adjustment explanation and the tax implications is a bit complex?

For reference, this is in relation to them accidentally not accruing interest on the weekend of opening some accounts:

Your compensation amount is at the maximum level of potential interest due, i.e. this has been awarded using the highest applicable product rate across the affected time period, and is paid gross of tax. In addition to this we have added further compensatory interest of 8% a year simple interest, to reflect being deprived of these funds.

We are required to deduct income tax at the basic rate (20%) from the 8% uplift component of your total compensation, this money is paid directly to the HMRC on your behalf. If you either do not pay income tax or pay higher rate tax you will need to contact HMRC to either claim or ensure your tax is appropriately paid. To find out more, please refer to the HMRC.GOV.UK website or ring their helpline on 0300 200 3300.

They don't give an itemisation of what value is gross interest and what net interest, just a single payment. I hope though that the end of tax year statements will detail it.

Ideally they should have made separate payments for each, but without that, it'd be a total guess how many days of the 8% was awarded to work out the net backwards without knowing the gross part of the compensation.

subjecttocontract

Yes it's just you. I can't get excited about wether my £1.89 is a complex calculation or not.

mebu60

No, it's not just AndyTh_2. I emailed Cynergy yesterday to request the splits between the underpaid interest paid gross and the compensatory interest paid net of tax. The amounts are relatively small (I received 2 compensation payments of £9 something) but the splits will be required for completing my SA. And really should have been supplied in the emails. 

I have also challenged them to explain why the compensation was taxable. 

subjecttocontract

But they have already clearly explained why they are deducting income tax from the 8% uplift.

mebu60

subjecttocontract said:

But they have already clearly explained why they are deducting income tax from the 8% uplift.

They have explained why they are deducting it but they have not explained why the compensation is taxable in the first place.

I have never had compensation or a goodwill payment that has been taxed.

AndyTh_2

subjecttocontract said:

But they have already clearly explained why they are deducting income tax from the 8% uplift.

it also says it's 8% a year uplift, and the money hasn't been in there for a whole year, so I'd expect a lower amount.

If it were separately disclosed and/or paid, then I'd know how much tax was withheld and how much I'd need to pay HMRC.

The uplift if taxable, isn't included in Personal Savings Allowance, instead considered Other Income, which has its own toggleable section of self-assessment.

AndyTh_2

mebu60 said:

I have also challenged them to explain why the compensation was taxable. 

My guess is its due to the compensation being proportional to the interest balance, rather than being a fixed amount compensation for all. It'd be similar then to Halifax Reward current account's £5/m cashback on £5k balance (which also withholds basic rate tax, gross £6.25/m)

isasmurf

mebu60 said:

subjecttocontract said:

But they have already clearly explained why they are deducting income tax from the 8% uplift.

They have explained why they are deducting it but they have not explained why the compensation is taxable in the first place.

I have never had compensation or a goodwill payment that has been taxed.

It is the interest on the compensation payment that has had tax deducted, not the compensation payment. As Cynergy says this is a legal requirement (Income Tax Act 2007 S874 as amended)

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim9115

subjecttocontract

mebu60 said:

subjecttocontract said:

But they have already clearly explained why they are deducting income tax from the 8% uplift.

They have explained why they are deducting it but they have not explained why the compensation is taxable in the first place.

I have never had compensation or a goodwill payment that has been taxed.

Yes they have. How can you read the explanation and not understand ? The compensatory interest on the money is taxable because HMRC say it's taxable. Cynergy are instructed to deduct tax at 20% and send it to HMRC......and that's exactly what they are doing. Simples.

If they are paying you £9 the compensatory interest is going to be a fraction of that and the tax deducted will be pennies.

EthicsGradient

Although the amounts may be small, the warning "if you... pay higher rate tax you will need to contact HMRC to ... ensure your tax is appropriately paid" is concerning, because you're being told "sort this out" without decent information. Cynergy did not say on which occasion(s) the shortfall in interest took place, or what the amount was, or how much of the total payment was "further compensatory interest" (and for what period that was calculated).

So, yes, I read the original Cynergy message as saying "we should have paid you interest over a weekend, we didn't, so here's what we should have paid, plus the equivalent of 8% yearly interest for that weekend on the amount of the deposit - "further compensatory interest". But now isasmurf's interpretation, and it makes sense now it's been said, is "plus the equivalent of 8% yearly interest on the money we should have paid you a few months ago, for those months".

eg: £10,000 deposited on a Saturday (so missing 2 days) 146 days earlier, in an account that gets 0.004% interest per day (about 1.47%/year):

My old interpretation:
interest that should have been paid: 2*0.00004*10000=£0.80
Compensatory interest: 2/365*0.08*10000=£4.38
20% sent to HMRC=£0.87
Total paid: £4.31

isasmurf's interpretation:
interest that should have been paid: 2*0.00004*10000=£0.80
Compensatory interest: 146/365*0.08*0.8=£0.0256
20% sent to HMRC=£0.00512 (!! - ie zero pence, rounded down to the nearest penny)
Total paid: £0.82 , or maybe £0.83

Since Cynergy did not give the equivalent figures of "£10,000", "2 days" "146 days", or the applicable account rate of 1.47%, you have to get a calendar out and search for all the deposits you made (over what period? From memory, Cynergy didn't say exactly how long they'd been getting this wrong) if you're going to have any actual information to contact HMRC with; and I don't think their explanation made it clear which calculation is the right one. Yes, the amounts will be small, and not worth claiming back overpaid tax about, but if they tell higher rate payers to contact HMRC, then they ought to give enough information for those people to be able to have something to show HMRC (eg "basic rate tax of £0.87 was paid, and I got £4.31 net").

And another thing: the payment shows up on the account statement as "Interest - interest adjustment". But it doesn't show up at all on the Certificate of Interest that Cynergy issue for the period it was received.

mebu60

subjecttocontract said:

mebu60 said:

subjecttocontract said:

But they have already clearly explained why they are deducting income tax from the 8% uplift.

They have explained why they are deducting it but they have not explained why the compensation is taxable in the first place.

I have never had compensation or a goodwill payment that has been taxed.

Yes they have. How can you read the explanation and not understand ? The compensatory interest on the money is taxable because HMRC say it's taxable. Cynergy are instructed to deduct tax at 20% and send it to HMRC......and that's exactly what they are doing. Simples.

If they are paying you £9 the compensatory interest is going to be a fraction of that and the tax deducted will be pennies.

How can you read my comments and not understand?

Because HMRC say so is not an answer to my question. I know HMRC say so, but why do they say so in this instance when I have never had compensation taxed before? What is different this time?

Thankfully AndyTh_2 and isasmurf had the capability to understand my question and I am much more enlightened now from their intelligent and thoughtful responses for which I thank them.

Plus I have already acknowledged that the amounts are relatively trivial but that does not change the fact that I need to know the splits to enable me to correctly complete my SA for 22/23. As instructed by HMRC.