Overpayment into ISA last year

w00519773

Last tax year I contributed £20,000 to my stocks and shares ISA and £4,000 to my Lifetime ISA (Lifetime ISA for the first time.  I did not realise that the lifetime ISA contributes to the £20,000 limit.  £16,400 of the contributions to the stocks and shares ISA has sat there as cash for the last year earning no interest or capital gains.

This year I have contributed £4,000 to my Lifetime ISA and £12,000 to my stocks and shares ISA leaving a £4,000 deficit this year to compensate for last year.

I guess I need to inform HMRC of this even though the entire additional £4,000 has earned no interest nor capital gains in the last year as per this post: I’ve exceeded the annual Isa limit, what should I do? (telegraph.co.uk).  I can prove this.  Are there any penalties for this?  This is the first time this has ever happened. 

eskbanker

No, you don't need to inform HMRC of anything, your ISA providers will report your data to HMRC in their annual submissions and the ball is then in HMRC's court to decide if any further action is necessary.  No penalties as such - worst case is that they declare the erroneous subscription to be invalid and treat income gained from it as taxable, which wouldn't be an issue if it's been left uninvested, but anecdotally they usually don't do anything for first time offenders.

w00519773

eskbanker said:

No, you don't need to inform HMRC of anything, your ISA providers will report your data to HMRC in their annual submissions and the ball is then in HMRC's court to decide if any further action is necessary.  No penalties as such - worst case is that they declare the erroneous subscription to be invalid and treat income gained from it as taxable, which wouldn't be an issue if it's been left uninvested, but anecdotally they usually don't do anything for first time offenders.

Thanks, but the overpayment is accross two different providers I.e. charles stanley direct and HL.

eskbanker

w00519773 said:

eskbanker said:

No, you don't need to inform HMRC of anything, your ISA providers will report your data to HMRC in their annual submissions and the ball is then in HMRC's court to decide if any further action is necessary.  No penalties as such - worst case is that they declare the erroneous subscription to be invalid and treat income gained from it as taxable, which wouldn't be an issue if it's been left uninvested, but anecdotally they usually don't do anything for first time offenders.

Thanks, but the overpayment is accross two different providers I.e. charles stanley direct and HL.

But both will report to HMRC, who'll then have visibility of your entire ISA activity for the year, and can aggregate it before deciding what action, if any, should be taken.

w00519773

eskbanker said:

w00519773 said:

eskbanker said:

No, you don't need to inform HMRC of anything, your ISA providers will report your data to HMRC in their annual submissions and the ball is then in HMRC's court to decide if any further action is necessary.  No penalties as such - worst case is that they declare the erroneous subscription to be invalid and treat income gained from it as taxable, which wouldn't be an issue if it's been left uninvested, but anecdotally they usually don't do anything for first time offenders.

Thanks, but the overpayment is accross two different providers I.e. charles stanley direct and HL.

But both will report to HMRC, who'll then have visibility of your entire ISA activity for the year, and can aggregate it before deciding what action, if any, should be taken.

I guess I am concerned they will approach me in the future when I dont have access to data to support my case.

I guess I could just capture the data now and then just reveal it in future if it is needed.  

Based on what you said I am wandering whether to move the outstanding 4K for this year to my stocks and shares isa as i am just inadvertently a "first time offender".  Thanks for your comments.

TiVo_Lad

eskbanker said:

w00519773 said:

eskbanker said:

No, you don't need to inform HMRC of anything, your ISA providers will report your data to HMRC in their annual submissions and the ball is then in HMRC's court to decide if any further action is necessary.  No penalties as such - worst case is that they declare the erroneous subscription to be invalid and treat income gained from it as taxable, which wouldn't be an issue if it's been left uninvested, but anecdotally they usually don't do anything for first time offenders.

Thanks, but the overpayment is accross two different providers I.e. charles stanley direct and HL.

But both will report to HMRC, who'll then have visibility of your entire ISA activity for the year, and can aggregate it before deciding what action, if any, should be taken.

@w00519773 This is why you have to provide your National Insurance Number when you open an ISA Account

Rich2808

I once made an overpayment - accidentally by paying into the wrong account which I got my provider to adjust for.

HMRC never contacted me - but this is more material.

The issue will be here which investment was made first - as presumably you would want to keep the lifetime ISA payment in full given the £1k bonus.

eskbanker

w00519773 said:
I guess I am concerned they will approach me in the future when I dont have access to data to support my case.

I guess I could just capture the data now and then just reveal it in future if it is needed.  

Based on what you said I am wandering whether to move the outstanding 4K for this year to my stocks and shares isa as i am just inadvertently a "first time offender".  Thanks for your comments.

If you breached the rules in 2021/22 then I believe they'll treat that on its own merit and won't expect you to take 'corrective action' yourself in the next tax year, so I doubt that legitimately using your full 2022/23 ISA allowance would cause any issue (but you'd need to decide quickly!).

enthusiasticsaver

I don't think you can correct in the following tax year but no doubt they will pick up that you have gone over the limit and presumably treat the additional £4k as taxable but who knows given the state of the tax office administration at the moment. I think I would be inclined to come clean with your S and S ISA provider and see what they suggest as presumably you want to leave the LISA intact. 

eskbanker

enthusiasticsaver said:

I think I would be inclined to come clean with your S and S ISA provider and see what they suggest as presumably you want to leave the LISA intact. 

No point in doing that - HMRC specifically tell providers not to offer advice:

In most cases investors who have subscribed to a disallowed combination of ISAs or have exceeded the overall subscription limit are not aware that they have made an error until it’s found during the HMRC compliance programme, which examines the annual returns submitted by ISA managers. You and the investor in this case will be informed of the error by HMRC compliance officers.

When you find out (usually from the investor) that the investor has subscribed to a disallowed combination of ISAs, or has exceeded the overall ISA subscription limit, you should advise the investor that HMRC will contact them in due course. You should not give any advice to customers, as you may not have all of the relevant facts or be certain of the action that HMRC will take.

If the investor wishes to contact HMRC to discuss the error, they can phone the ISA Helpline.

https://www.gov.uk/guidance/close-void-or-repair-an-isa-if-youre-an-isa-manager