Tax on 5 year fixed rate bonds

Albermarle

HMRC have recommended that I amend my previous tax returns and put in claims for the tax on earlier ones (though some are too early) so that I can then pay the tax at maturity!

Can you expand on that ? Did they just contact you out of the blue to make this recommendation? Was it official or just a comment from a HMRC advisor ?

Also I would have thought they would have told you to do it this way or that way , not just recommend you do something ?

eskbanker

Bugs22 said:

What are people doing who are half way through a 5 year bond that they have been declaring and paying tax on annually, possibly incorrectly according to this forum? HMRC have recommended that I amend my previous tax returns and put in claims for the tax on earlier ones (though some are too early) so that I can then pay the tax at maturity! This would be a huge job (I have nearly 40 accounts) and may not even be correct in some cases as I can get no sense from different providers as to when they report to HMRC (most say they don't!). Is there a risk if I continue as before with the ones I've been paying tax on already that I could end up being taxed at maturity as well?

You should be able to get listings from HMRC of what they've been told by the providers for each year - that doesn't necessarily mean that such notifications have been right though!  Do you really have nearly 40 multi-year fixed term savings accounts?

fuzzzzy

Bugs22 said:

What are people doing who are half way through a 5 year bond that they have been declaring and paying tax on annually, possibly incorrectly according to this forum? HMRC have recommended that I amend my previous tax returns and put in claims for the tax on earlier ones (though some are too early) so that I can then pay the tax at maturity! This would be a huge job (I have nearly 40 accounts) and may not even be correct in some cases as I can get no sense from different providers as to when they report to HMRC (most say they don't!). Is there a risk if I continue as before with the ones I've been paying tax on already that I could end up being taxed at maturity as well?

Do you have any option with your accounts to change the interest payment to be paid away mid-term or are you locked in for the interest payment to be at maturity?

I have a few multi-year accounts but all have the option to switch how the interest is paid at any point during the term of the account. At the moment I have them set to compound the interest to the account annually but more and more I am thinking I will change them to pay out to an external account to avoid all this uncertainty.

masonic

Bugs22 said:

What are people doing who are half way through a 5 year bond that they have been declaring and paying tax on annually, possibly incorrectly according to this forum? HMRC have recommended that I amend my previous tax returns and put in claims for the tax on earlier ones (though some are too early) so that I can then pay the tax at maturity! This would be a huge job (I have nearly 40 accounts) and may not even be correct in some cases as I can get no sense from different providers as to when they report to HMRC (most say they don't!). Is there a risk if I continue as before with the ones I've been paying tax on already that I could end up being taxed at maturity as well?

Providers have to report interest in the year it is credited to the account, so it will be wrongly taxed based on their returns if they don't permit the customer to access said interest until maturity and the account matures in a different tax year. But the main risk factor here is that HMRC have been made aware that some of your interest was taxed in the wrong year and have advised you to amend your tax returns. Like others, I'd be keen to hear how that came about.

mh1910

An update for anyone tracking this thread. I submitted my tax return and had it corrected by HMRC because their records showed a different total. They gave me the details over Webchat (very impressive service by the way) and it seems that several banks reported the annual interest on long term fixed rate bonds to HMRC. Worryingly, some who should have reported (because they are instant access) hadn't. So, even if you don't submit a return, you must check the total HMRC use to set your tax code as it's your legal obligation to get it right (I think).

So, my takeaway from this is that the best bet is to just match the HMRC number (they will provide this in advance of filling in your return) but add on any others they don't seem to have gathered.

The advice on this from HMRC on their forums is a mess, and the guidance doesn't have enough clear examples. In my opinion the banks should state, when you open the account or in Ts &Cs whether tax is reported and payable annually or at the end.

Also, make your lives easier by having the interest paid out to another account, if that's an option.  

Albermarle

mh1910 said:

An update for anyone tracking this thread. I submitted my tax return and had it corrected by HMRC because their records showed a different total. They gave me the details over Webchat (very impressive service by the way) and it seems that several banks reported the annual interest on long term fixed rate bonds to HMRC. Worryingly, some who should have reported (because they are instant access) hadn't. So, even if you don't submit a return, you must check the total HMRC use to set your tax code as it's your legal obligation to get it right (I think).

So, my takeaway from this is that the best bet is to just match the HMRC number (they will provide this in advance of filling in your return) but add on any others they don't seem to have gathered.

The advice on this from HMRC on their forums is a mess, and the guidance doesn't have enough clear examples. In my opinion the banks should state, when you open the account or in Ts &Cs whether tax is reported and payable annually or at the end.

Also, make your lives easier by having the interest paid out to another account, if that's an option.  

Thanks for the update. It seems HMRC need to review how they handle interest, as they must be getting a lot of enquiries on the subject, and they tend to be overloaded/hard to contact anyway.

EthicsGradient

mh1910 said:

An update for anyone tracking this thread. I submitted my tax return and had it corrected by HMRC because their records showed a different total. They gave me the details over Webchat (very impressive service by the way) and it seems that several banks reported the annual interest on long term fixed rate bonds to HMRC. Worryingly, some who should have reported (because they are instant access) hadn't. So, even if you don't submit a return, you must check the total HMRC use to set your tax code as it's your legal obligation to get it right (I think).

So, my takeaway from this is that the best bet is to just match the HMRC number (they will provide this in advance of filling in your return) but add on any others they don't seem to have gathered.

The advice on this from HMRC on their forums is a mess, and the guidance doesn't have enough clear examples. In my opinion the banks should state, when you open the account or in Ts &Cs whether tax is reported and payable annually or at the end.

Also, make your lives easier by having the interest paid out to another account, if that's an option.  

While it's good to hear how this problem has worked out in practice for someone, it's quite worrying that it sounds like HMRC are going to use the misleading figures that their broken reporting system provides, rather than the correct figures (interest is taxable only when accessible) that HMRC have been saying, for some months now, must be used (and which they've even told people to correct previous years' returns to use).

I had come to the conclusion that they really had decided what taxpayers should say (as had MSE in its advice), and have been planning what to do with money from accounts that mature in next tax year accordingly. But if they're now going to use whatever the banks report to them, then that plan will cost me money.

**** HMRC.

masonic

Well we all know that it ends well when the numbers the computer spits out are taken as gospel.

35har1old

EthicsGradient said:

mh1910 said:

An update for anyone tracking this thread. I submitted my tax return and had it corrected by HMRC because their records showed a different total. They gave me the details over Webchat (very impressive service by the way) and it seems that several banks reported the annual interest on long term fixed rate bonds to HMRC. Worryingly, some who should have reported (because they are instant access) hadn't. So, even if you don't submit a return, you must check the total HMRC use to set your tax code as it's your legal obligation to get it right (I think).

So, my takeaway from this is that the best bet is to just match the HMRC number (they will provide this in advance of filling in your return) but add on any others they don't seem to have gathered.

The advice on this from HMRC on their forums is a mess, and the guidance doesn't have enough clear examples. In my opinion the banks should state, when you open the account or in Ts &Cs whether tax is reported and payable annually or at the end.

Also, make your lives easier by having the interest paid out to another account, if that's an option.  

While it's good to hear how this problem has worked out in practice for someone, it's quite worrying that it sounds like HMRC are going to use the misleading figures that their broken reporting system provides, rather than the correct figures (interest is taxable only when accessible) that HMRC have been saying, for some months now, must be used (and which they've even told people to correct previous years' returns to use).

I had come to the conclusion that they really had decided what taxpayers should say (as had MSE in its advice), and have been planning what to do with money from accounts that mature in next tax year accordingly. But if they're now going to use whatever the banks report to them, then that plan will cost me money.
**** HMRC.

When you first apply for a bond which gives you the options of adding the interest to the bond yearly or paying it away to a nominated account it does not matter which option you choose  it will be reported to HMRC yearly

intalex

Does anyone know of any bank (for any product) producing a certificate of interest for tax purposes that follows the "tax all at maturity" rule even though interest is credited (compounded) annually?