Tax on 5 year fixed rate bonds

Dazed_and_C0nfused

coyrls said:

Bigwheels1111 said:

coyrls said:

Bigwheels1111 said:

Not fight with HMRC 5 years later.

Has anybody had a fight with HMRC over this issue?  I suspect not.

I will fight with anyone that wants my money.😜
I had to pay 10k in CGT, 3 years ago.
It still claws at my soul.
I would argue and fight over a penny mistake, somewhere in the house I have a refund cheque from a
Mistake by BT I think it is. A whole 2p.
I used to have it in a frame on the wall.

I was just saying that self reporting would save the hassle in year five and the tax bill.

What I meant was, has anybody had any experience of HMRC disputing savings interest submissions that either report the interest annually or at the end of the term?  I suspect not.

They seemingly have a process for it, albeit one not publicly available.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye130063

km1500

Albermarle said:

km1500 said:

It is fairly straightforward - the onus is on you to report your tax correctly esch year.

This is irrespective of what the banks and building societies do or do not report annually.

If you have eg a 5 year bond where the interest is added in year 5 then that is what you report to HMRC.

If HMRC mistakenly add the interest each year then you fill in a return each year correcting the mistake

Many people do not fill in tax returns, in fact HMRC actively discourage it if you do not fit their criteria for filling one in . For savings interest there is no need to fill one in unless you earn over £10K interest in a tax year.
In that case you are reliant on how the savings provider reports the interest and how HMRC use that info.

in that case you contact them and point out their mistake.

of course all this is a right pain in the xxx and is probably honoured more in the breach than the observance.

Nevertheless that is the position. Notify HMRC of your correct taxable income if they get it wrong.

At the end of five years report the whole interest in that tax year.

EthicsGradient

km1500 said:

Albermarle said:

km1500 said:

It is fairly straightforward - the onus is on you to report your tax correctly esch year.

This is irrespective of what the banks and building societies do or do not report annually.

If you have eg a 5 year bond where the interest is added in year 5 then that is what you report to HMRC.

If HMRC mistakenly add the interest each year then you fill in a return each year correcting the mistake

Many people do not fill in tax returns, in fact HMRC actively discourage it if you do not fit their criteria for filling one in . For savings interest there is no need to fill one in unless you earn over £10K interest in a tax year.
In that case you are reliant on how the savings provider reports the interest and how HMRC use that info.

in that case you contact them and point out their mistake.

of course all this is a right pain in the xxx and is probably honoured more in the breach than the observance.

Nevertheless that is the position. Notify HMRC of your correct taxable income if they get it wrong.

At the end of five years report the whole interest in that tax year.

There are probably many people unaware that HMRC's current position is that, despite their tax reporting tools not being adequate for the job, interest is only taxable when it is accessible (after all, some HRMC employees took the other position only a year ago or so, and there's been no change in law since then). It's rather ridiculous of them to expect people to know HMRC regulations better than HMRC employees used to, and to spend their time correcting the HMRC process to make up for it (or, as one of the "HMRC admin" on their forum has now suggested, employ an adviser to sort it out).

We've discussed this, and got the blood out of the HMRC stone. But most people will have seen far less information about it.

Albermarle

km1500 said:

Albermarle said:

km1500 said:

It is fairly straightforward - the onus is on you to report your tax correctly esch year.

This is irrespective of what the banks and building societies do or do not report annually.

If you have eg a 5 year bond where the interest is added in year 5 then that is what you report to HMRC.

If HMRC mistakenly add the interest each year then you fill in a return each year correcting the mistake

Many people do not fill in tax returns, in fact HMRC actively discourage it if you do not fit their criteria for filling one in . For savings interest there is no need to fill one in unless you earn over £10K interest in a tax year.
In that case you are reliant on how the savings provider reports the interest and how HMRC use that info.

in that case you contact them and point out their mistake.

of course all this is a right pain in the xxx and is probably honoured more in the breach than the observance.

Nevertheless that is the position. Notify HMRC of your correct taxable income if they get it wrong.

At the end of five years report the whole interest in that tax year.

If reporting the whole interest at the end of 5 years, meant a bigger tax bill ( as it was not spread out over 5 years) I think I would let sleeping dogs lie and let them do it their way !
As another poster pointed out the large majority of the general public do not filling a tax return and will be oblivious to these issues in any case, and it would never occur to them to inform HMRC about anything connected to savings interest. Especially as the general advice to anyone that asks is that the savings provider informs HMRC of interest, and you do not have to do anything.

bristolleedsfan

km1500 said:

Albermarle said:

km1500 said:

It is fairly straightforward - the onus is on you to report your tax correctly esch year.

This is irrespective of what the banks and building societies do or do not report annually.

If you have eg a 5 year bond where the interest is added in year 5 then that is what you report to HMRC.

If HMRC mistakenly add the interest each year then you fill in a return each year correcting the mistake

Many people do not fill in tax returns, in fact HMRC actively discourage it if you do not fit their criteria for filling one in . For savings interest there is no need to fill one in unless you earn over £10K interest in a tax year.
In that case you are reliant on how the savings provider reports the interest and how HMRC use that info.

in that case you contact them and point out their mistake.

of course all this is a right pain in the xxx and is probably honoured more in the breach than the observance.

Nevertheless that is the position. Notify HMRC of your correct taxable income if they get it wrong.

At the end of five years report the whole interest in that tax year.

Is that how you would interpret this response 2 months ago from HMRC employee ?

"so if you do not file a tax return it is irrelevant for you when you can access your interest and when to declare it"

masonic

bristolleedsfan said:

km1500 said:

Albermarle said:

km1500 said:

It is fairly straightforward - the onus is on you to report your tax correctly esch year.

This is irrespective of what the banks and building societies do or do not report annually.

If you have eg a 5 year bond where the interest is added in year 5 then that is what you report to HMRC.

If HMRC mistakenly add the interest each year then you fill in a return each year correcting the mistake

Many people do not fill in tax returns, in fact HMRC actively discourage it if you do not fit their criteria for filling one in . For savings interest there is no need to fill one in unless you earn over £10K interest in a tax year.
In that case you are reliant on how the savings provider reports the interest and how HMRC use that info.

in that case you contact them and point out their mistake.

of course all this is a right pain in the xxx and is probably honoured more in the breach than the observance.

Nevertheless that is the position. Notify HMRC of your correct taxable income if they get it wrong.

At the end of five years report the whole interest in that tax year.

Is that how you would interpret this response 2 months ago from HMRC employee ?
"so if you do not file a tax return it is irrelevant for you when you can access your interest and when to declare it"

My interpretation of that is like many HMRC Admins before them, this HMRC Admin has not taken into account the subtleties of the tax system when considering their reply. Just like the one that said interest should always be taxable in the year it is paid, then quickly retracted that statement when someone mentioned Guaranteed Growth Bonds.

intalex

A problem might happen where a saver declared annually to HMRC and the institution reported only once at maturity. Which means HMRC would consider/tax the saver "volunteered" declaration annually, and then see a much lower saver declaration amount in the maturity tax year relative to the institution reported amount, not exactly sure what course of action they might take at that point?

coyrls

intalex said:

A problem might happen where a saver declared annually to HMRC and the institution reported only once at maturity. Which means HMRC would consider/tax the saver "volunteered" declaration annually, and then see a much lower saver declaration amount in the maturity tax year relative to the institution reported amount, not exactly sure what course of action they might take at that point?

I don't think we've seen any evidence that they take any course of action.

masonic

intalex said:

A problem might happen where a saver declared annually to HMRC and the institution reported only once at maturity. Which means HMRC would consider/tax the saver "volunteered" declaration annually, and then see a much lower saver declaration amount in the maturity tax year relative to the institution reported amount, not exactly sure what course of action they might take at that point?

Institutions are not permitted to declare at maturity unless they credit interest only at maturity. Their obligation is to report interest credited, whereas the taxpayer is required to declare it when it 'arises' for tax. The two can be different, hence the information supplied to HMRC by savings institutions cannot be relied upon for taxation. Yet HMRC are doing just that.

The scenario that could happen is that the savings institution declares annually, but the taxpayer "volunteers" (or is compelled through self assessment) that those annual figures should be removed from the total and declared in the tax year the account matures. This will also create a discrepancy, but it should be expected that these figures can differ, and the taxpayer should be believed.

intalex

coyrls said:

intalex said:

A problem might happen where a saver declared annually to HMRC and the institution reported only once at maturity. Which means HMRC would consider/tax the saver "volunteered" declaration annually, and then see a much lower saver declaration amount in the maturity tax year relative to the institution reported amount, not exactly sure what course of action they might take at that point?

I don't think we've seen any evidence that they take any course of action.

So say someone saves £50k in a 5-year fix @ 5% AER with interest paid into the fix annually:

Annual Interest Y1 - Y5: £2,500 ; £2,625 ; £2,756 ; £2,894 ; £3,039

For Y1-Y4 I imagine HMRC will happily accept the saver volunteered interest amounts and tax them accordingly.

For Y5, there will be a difference of £10,775 between the saver vs institution declarations, I can't imagine HMRC doing nothing, as a minimum they'd ask the saver for an explanation/breakdown to understand the gap.