Query regarding Zopa's calculation of interest on savings

Sillychuckie

Hello - will try to keep this brief and factual:

1.  Upon receipt of my 2022/23 'Certificate Of Interest', I thought I'd be diligent and check it was accurate.
     I manually added up each and every interest payment received from 6th April 2022 -> 5th April 2023 using my historic statements.
     The figure did not match that of my annual 'Certificate Of Interest'.

2.  I raised a complaint with Zopa, and they have investigated, and closed it.
     They say:

     "The interest differs, due to rounding of micropennies. For each of a customers monthly statements, you will only receive the amount of interest rounded down. 
      However, the certificate of interest is the sum of all the actual amounts (micropennies included), which is why it will sometimes be larger than the sum paid and shown on the statements."

SO in writing, Zopa have basically admitted that they round interest payments down (which is fine.... I suspect most banks do), but that they have an entirely different treatment when producing the end of year statements. It is this inconsistency that I take issue with.

I'm not bothered about the fact that I have been paid 38p less. I'm bothered about the fact that they do one thing for one set of statements, and another for the annual statement.
What is worse is that I use the annual statement when I sent all my "Certificate Of Interest" documents to my accountant... meaning that he declares interest to HMRC which is higher than that which I have actually been paid. Therefore, I have to pay additional high rate tax, on savings interest I have not even received.

Zopa is the only institution I have ever had this issue with, and they have been very dismissive of my complaint.
I'm going to have to raise it with the ombudsman, possibly HMRC.

What is even worse, is that after a year, these 'fractional pennies' add up to a difference of 38p... but they still haven't ever paid that into my account. I do not understand why the fractions do not carry over, then get paid out once they exceed 1p. Perhaps their terms and conditions state that fractional pennies will never be paid out, but then why included them on the end of year certificate? They have not addressed this question in their complaint. Maybe they pay it out when the account is closed - but then I shouldn't be paying HMRC tax on it until the year I receive it!

At best, they are being incompetent.
At worse, this is scandal to declare X on all their accounts and reporting to HMRC, but pay customers Y, in order to keep the difference for themselves.
I imagine across all their customers, this could add up to a tidy sum (millions of £).

- Has anyone else noticed this?
- Does anyone disagree with me that the inconsistency between monthly/annual statements is unreasonable, and can explain it in a way I understand?
- Is the financial ombudsman the next step, or HMRC... or perhaps one of the financial newspapers. Mr Lewis - your next campaign?  (hah).
- Does anyone know any other institutions that do this? I've certainly never come across the problem before, but I doubt many people make a habit of checking their Certificates Of Interest (and not many have to pay tax on their savings these days due to the annual allowances).

As far as I'm concerned, the end of year certificate is an error and I'm paying too much tax.
Zopa has been so dismissive of the complaint, I think they know its an issue, but one that probably works in their favor.

SC

p.s. To summarise:
> Interest is calculated daily on these accounts, and rounded down into whole pennies (daily).
> The total is paid out monthly. The 'rounding' error (which can accumulate into fair sums because it is calculated daily), is therefore never paid out. It is never carried over from one day to the next. I don't think this is normal, but possibly within their terms.
> Their annual COI statements, are calculated differently (interest is calculated on the daily balance, without the daily rounding, and summed up over the 365 days).

Dazed_and_C0nfused

As far as I'm concerned, the end of year certificate is an error and I'm paying too much tax

What was your total interest (to the penny) without the 38p?

Sillychuckie

799.38  (total actually received, based on monthly statements and real payments into the account)
799.51  (annual certificate of interest figure)

Obviously, the differences are small. Even my additional tax burden is negligible, which is why I just paid it.
But then today I saw them closing the complaint in such a dismissive way, it annoyed me again - enough to write the post.

And with millions of customers, and errors each year... this may have a total impact a bit greater than my 13p!
(is more about the principle...)


[so 13p diff, not 38p... original post was on memory - went to check exact figures following your query]. Main point still the same of course. Certainly wasn't over declaring for dramatic effect.

AmityNeon

Zopa worded their response poorly. You do receive accumulated fractional pennies, but their monthly statements (and app) are incapable of reporting the correct figure.

https://www.zopa.com/help/article/interest-calculated-smart-saver

I recently received “0.00” (literally as shown) in interest, but my account balance had actually increased by 1p. Essentially, your account balance retains the fractional penny accumulated from previous months, but the ‘interest payment’ figure does not. Then, when both figures are rounded down to the nearest penny, there could be a discrepancy because the fractional penny is not being applied consistently.

Technically, ‘interest payment’ is an erroneous descriptor because it doesn’t reflect the actual interest paid. The explicit figure shown, in my case “0.00”, is merely the calculated interest for the last month only (and rounded down); this figure is not the amount by which the account balance increases.

For some reason, Zopa cannot fix their implementation to ensure consistency between interest payment figures and account balance increases.

isasmurf

Sillychuckie said:

> Interest is calculated daily on these accounts, and rounded down into whole pennies (daily).
> The total is paid out monthly. The 'rounding' error (which can accumulate into fair sums because it is calculated daily), is therefore never paid out. It is never carried over from one day to the next. I don't think this is normal, but possibly within their terms.

The 'rounding error' is paid out. 

Let's test it
From the starting balance at the beginning of the tax year, add up all the deposits and withdrawals and (rounded down) interest payments to your account as shown on the statements. I suspect this will not match the balance of the account. 
Do the same again but with the interest shown on the CoI instead of the interest shown as paid on the statements. I suspect this will match the balance of the account. 

What Zopa do differently is pay interest to the micropennies, but only show the rounded down amount on the statement, and as said in the previous post, never include when those micropennies cumulatively total 1p.
Over 3 months you would be paid, for example, interest of 10.36p, 10.45p, 10.37p making cumulative interest payments of 31.18p but your statements will show 3 interest payments of 10p, or cumulative payments of 30p.

Other banks that account for micropennies will include them in the interest payment shown on the statement for the month when they cumulatively total a whole penny. 

dingling68

The tax return software in our office is set to ignore the pence and will round down in the vast majority of cases where I have bothered to check the pennies 

wmb194

dingling68 said:

The tax return software in our office is set to ignore the pence and will round down in the vast majority of cases where I have bothered to check the pennies 

Yes, that's how it's done, and tax withheld will be rounded up to the nearest pound.

Dazed_and_C0nfused

wmb194 said:

dingling68 said:

The tax return software in our office is set to ignore the pence and will round down in the vast majority of cases where I have bothered to check the pennies 

Yes, that's how it's done, and tax withheld will be rounded up to the nearest pound.

Agree, the op has misunderstood how tax on interest will be calculated.

The extra 13p will not add any additional liability.

Although it sounds like in reality there isn't actually any "extra"!

Sillychuckie

Thank you all for your wonderful replies.

So it sounds to me like I have just misunderstood a fairly poor explanation of events (from Zopa), and that I HAVE actually received the interest declared on their COI. It might be that the monthly statements are wrong, as opposed to the COI record.
I still think this is something they should fix, as I don't see why they can't show these amounts on a monthly statement once they have sufficiently accumulated to become whole pennies. Its all rather odd.

I will verify later by following the suggestion of manually crunching the numbers by doing 'Start Balance' + 'Deposits' - 'Withdrawals' etc, over the year - but this will take some time.

I also note with interest the point about HMRC returns rounding down. I was aware of this, but forgot.
However - are you not making the assumption that these are my only savings for the tax year?
If, for argument sake, my COI did inflate my savings by '13p'... (though this may not be the case), were that additional 13p roll my total interest over a £1 cutoff, this would mean HMRC would round down to the NEXT nearest £, rather than the previous £.

It has suddenly dawned on me why Dazed_and_confused, asked me the question: "What was your total interest (to the penny) without the 38p?".

So the next question (one for my accountant really), is:
- Does he round down each of the COI figures (I give him ~5 of them) before entering, or does he add them all together and then let HMRC round down?
- and if so, in this instance, has this caused me to roll over into the next £1 bracket.

As a worst case scenario, my additional tax cost has actually increased to something closer to 40p.
But, it would seem that my whole post is moot anyway, as based on what you are saying, the COI figure is correct and I have just misunderstood their explanation.

This is why I come to you clever lot!
Thanks very much all.

I'll verify at some point when I have time, but I suspect you are all right. I'll follow up if it appears to be otherwise.

SC.

CheekyMikey

Would have been a disaster if you had actually been correct and had to pay 40% tax on 13p…you’d have had to sell the Bentley. Perhaps you should reword your rather alarmist post title?

cwep2

It is still annoying and 'wrong' IMHO.
From what I can tell the balance can be higher than is shown, certainly rounding doesn't work to the 'nearest' penny.

I had a few pots with small amounts in (setting up a ladder) each with say 1.00 in, or 1.01. 
When I closed them and the balances went into the primary pot, there was about 10p extra vs what was shown before.

But I only closed down 5-6 pots so even if the amounts shown were rounded down from 0.99p to 0 it would have added only 5-6p. Seems like the balance isn't correct and it only gets credited or worked out properly when you close the pot. 

It's small rounding error and likely to only ever be a few pence but its pretty poor overall.