Tax reporting of the Nationwide 'fair share' payment

Imvrasos

Posting a new thread as the main one revolves around the eligibility criteria.

The decision by Nationwide to report this as 'interest' is absurd. Interest is a return arising from loaned or saved funds, this payment has nothing to do with this. It is a form of Nationwide returning some profits to its customers, hence a form of dividend and should be reported as such, to be taxed under the dividend allowance, not the savings allowance.

The only reason Nationwide aim to report it as interest, and not as a dividend, is to streamline their own admin, as they already report interest earnings anyway. This way they can fully automate the reporting instead of setting a new dividend reporting admin team and process. 

Unsure how this could stand if legally challenged or if HMRC decides to look into it, I think tax law may have a slight priority over private businesses trying to create admin efficiencies.  

masonic

As they have suggested doing this on an ongoing basis, it should be treated as an annual payment and taxed as other income (ie. 20% tax deducted at source, reclaimable for non-taxpayers or a further liability for higher rate taxpayers). That would be my prediction of what will happen if HMRC looks into it. It cannot be a dividend, as members are not shareholders and it cannot be cashback as no purchase is required.

Section62

Imvrasos said:

Posting a new thread as the main one revolves around the eligibility criteria.

The decision by Nationwide to report this as 'interest' is absurd. Interest is a return arising from loaned or saved funds, this payment has nothing to do with this. It is a form of Nationwide returning some profits to its customers, hence a form of dividend and should be reported as such, to be taxed under the dividend allowance, not the savings allowance.

The only reason Nationwide aim to report it as interest, and not as a dividend, is to streamline their own admin, as they already report interest earnings anyway. This way they can fully automate the reporting instead of setting a new dividend reporting admin team and process. 

Unsure how this could stand if legally challenged or if HMRC decides to look into it, I think tax law may have a slight priority over private businesses trying to create admin efficiencies.  

I don't know as fact - I'm speculating here - but I suspect the reason isn't to do with admin efficiencies instead due to the legalities surrounding a mutual building society paying out a 'dividend' (to circa 20% of members) rather than paying them 'interest'.

The ability to pay a 'dividend' simply doesn't appear to exist within Nationwide's Memorandum & Rules.  So I suspect to be able to pay a 'dividend' Nationwide would have to go to a full vote of members for an alteration to the Memorandum & Rules. (assuming the law even allows this)

I'd suggest this would be a vote the Board would probably lose - if the proposals were anything like giving 100% of the 'dividend' to only 20% of the membership.

Hence the need to call this 'interest' (in line with HMRC rules) so Nationwide are able to distribute it on whatever (headline-grabbing) basis they wish.

MattMattMattUK

Imvrasos said:

Posting a new thread as the main one revolves around the eligibility criteria.

The decision by Nationwide to report this as 'interest' is absurd. Interest is a return arising from loaned or saved funds, this payment has nothing to do with this. It is a form of Nationwide returning some profits to its customers, hence a form of dividend and should be reported as such, to be taxed under the dividend allowance, not the savings allowance.

The only reason Nationwide aim to report it as interest, and not as a dividend, is to streamline their own admin, as they already report interest earnings anyway. This way they can fully automate the reporting instead of setting a new dividend reporting admin team and process. 

Unsure how this could stand if legally challenged or if HMRC decides to look into it, I think tax law may have a slight priority over private businesses trying to create admin efficiencies.  

Your post seems to be trying to report your unsubstantiated opinion as fact. They will have taken legal advice before categorising it as interest, they will almost certainly have spoken to HMRC ahead of this as well and had it signed off. The decision will have been based on the law, not on admin. The payment is specifically not a dividend and cannot be under law, the members are not shareholders, Nationwide is a building society/mutual organisation and as such as no ability to issue a dividend, this payment is not a dividend. Interest has a much wider definition, easily wide enough to say that using the criteria they have used the payment is a discretionary interest payment (rather than contractual), which is what they have done.

Why are you so irate about this being correctly categorised as interest? 

wmb194

masonic said:

As they have suggested doing this on an ongoing basis, it should be treated as an annual payment and taxed as other income (ie. 20% tax deducted at source, reclaimable for non-taxpayers or a further liability for higher rate taxpayers). That would be my prediction of what will happen if HMRC looks into it. It cannot be a dividend, as members are not shareholders and it cannot be cashback as no purchase is required.

Re dividends, that's an interesting one. Do you need to be a shareholder?

Not many years ago I owned a debenture and there were three elements to its distributions: a principal repayment, a fixed interest payment and a variable dividend related to the profitability of the business. I owned a debt instrument but I definitely wasn't a shareholder.

metrobus

Imvrasos said:

Posting a new thread as the main one revolves around the eligibility criteria.

The decision by Nationwide to report this as 'interest' is absurd. Interest is a return arising from loaned or saved funds, this payment has nothing to do with this. It is a form of Nationwide returning some profits to its customers, hence a form of dividend and should be reported as such, to be taxed under the dividend allowance, not the savings allowance.

The only reason Nationwide aim to report it as interest, and not as a dividend, is to streamline their own admin, as they already report interest earnings anyway. This way they can fully automate the reporting instead of setting a new dividend reporting admin team and process. 

Unsure how this could stand if legally challenged or if HMRC decides to look into it, I think tax law may have a slight priority over private businesses trying to create admin efficiencies.  

They did give the active members who qualified the option not to receive it.
If you feel so strongly about it being classed as interest or it causes you problems just reject it. Pretty simple.

Dazed_and_C0nfused

It looks like Nationwide may well have done their homework, Section 372 refers,

https://www.legislation.gov.uk/ukpga/2005/5/part/4/chapter/2

Imvrasos

MattMattMattUK said:

Imvrasos said:

Posting a new thread as the main one revolves around the eligibility criteria.

The decision by Nationwide to report this as 'interest' is absurd. Interest is a return arising from loaned or saved funds, this payment has nothing to do with this. It is a form of Nationwide returning some profits to its customers, hence a form of dividend and should be reported as such, to be taxed under the dividend allowance, not the savings allowance.

The only reason Nationwide aim to report it as interest, and not as a dividend, is to streamline their own admin, as they already report interest earnings anyway. This way they can fully automate the reporting instead of setting a new dividend reporting admin team and process. 

Unsure how this could stand if legally challenged or if HMRC decides to look into it, I think tax law may have a slight priority over private businesses trying to create admin efficiencies.  

Your post seems to be trying to report your unsubstantiated opinion as fact. They will have taken legal advice before categorising it as interest, they will almost certainly have spoken to HMRC ahead of this as well and had it signed off. The decision will have been based on the law, not on admin. The payment is specifically not a dividend and cannot be under law, the members are not shareholders, Nationwide is a building society/mutual organisation and as such as no ability to issue a dividend, this payment is not a dividend. Interest has a much wider definition, easily wide enough to say that using the criteria they have used the payment is a discretionary interest payment (rather than contractual), which is what they have done.

Why are you so irate about this being correctly categorised as interest? 

My post is indeed my opinion and understanding on a lump sum loyalty payment not being interest, no more or less unsubstantiated by your own speculative response.

So I would ask for a source or reference on your certainty of this loyalty payment being 'interest'; otherwise I ask why are you so irate about my efforts to interpret this with some common sense, and rush to defend this organisation?

Imvrasos

Dazed_and_C0nfused said:

It looks like Nationwide may well have done their homework, Section 372 refers,

https://www.legislation.gov.uk/ukpga/2005/5/part/4/chapter/2

Thank you very much for this, that's what I was looking for. So it is indeed a dividend but classed as interest due to a small print loophole. I take it as another example of the ever present weak overlap between taxation laws, processes and common sense.

masonic

wmb194 said:

masonic said:

As they have suggested doing this on an ongoing basis, it should be treated as an annual payment and taxed as other income (ie. 20% tax deducted at source, reclaimable for non-taxpayers or a further liability for higher rate taxpayers). That would be my prediction of what will happen if HMRC looks into it. It cannot be a dividend, as members are not shareholders and it cannot be cashback as no purchase is required.

Re dividends, that's an interesting one. Do you need to be a shareholder?

Not many years ago I owned a debenture and there were three elements to its distributions: a principal repayment, a fixed interest payment and a variable dividend related to the profitability of the business. I owned a debt instrument but I definitely wasn't a shareholder.

I was going by https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim5010 and linked pages. Interestingly, one of these pages suggests "Investors holding certain types of building society account (usually called share accounts) are members of the society and receive what are technically dividends", but I'm not sure that applies in this case, as the criteria are not based on anything like this. I've had experience of credit unions using (capital at risk) share accounts to determine dividend payments.

There may be ownership structures that don't involve shares or share accounts, but in these instances my understanding is that a company cannot pick and choose who to pay a dividend.

I don't think that anyone should assume that Nationwide would necessarily obtain HMRC's blessing on anything it has decided. Hargreaves Lansdown certainly didn't in the case if its loyalty bonus, and that ended up in a protracted legal battle some years after the fact. Likewise, Interactive Investor is currently back-billing its customers for tax it should have collected at source.

Sarahspangles

Up to November 2019 Nationwide were paying us 3% on £2,500 held in our FlexPlus account i.e. £75 pa. I’m happy to see it as interest. As it’s June, if this has an adverse effect on someone’s tax rate, they have time to take evasive action.