When you pay tax on savings, just spoken to HMRC

DavidAC

If you don't complete SA I expect HMRC will get figures from each of your savings providers telling them how much tax you have earned in each tax year. I doubt HMRC will take into account weather you have access to the interest or not, they probably would not even know. If this is the case the tax year the interest is taxed will probably be the tax year the savings provider declares it to HMRC. Getting a straight answer to when it is declared from a savings provider is not easy. It seems you can only be relatively certain interest is only taxed at maturity if it is only added and paid at maturity.

Shylock_249

DavidAC said:

If you don't complete SA I expect HMRC will get figures from each of your savings providers telling them how much tax you have earned in each tax year.

I've had a number of conversations with HMRC recently trying to reconcile my and my wife's interest shown on P800. I asked them for a print out of the details they held for me, they sent me a list. It had 18 entries 11 of which were estimates. Of the 7 actuals one building society (YBS) had NOT reported to HMRC, this was in the middle of  September.  The HMRC guy said that normally banks etc should report by 30 Jun (IIRC) but had been given an extention until 21 Oct.  I had 2 accounts with YBS which were NOT reported. One was shown on the list as an estimate, I was able to give them the correct figure but the guy recommended that I didn't give him the details of the other account because at that time it wasn't shown on their system and if I notified it and YBS did the same it could appear twice.  A few weeks later I received a P800 and the interest figure was correct indicating that YBS had submitted - I owed them money and paid it through the Government Gateway.

All our taxable accounts are held in joint names, so mine and my wife's interest should be the same.

Later she received her P800 and the figure shown was wrong in their favour by over £160.oo.  After speaking to them on the phone I was able to point out that they had added a spurious estimate to the actual figure.  I wonder why it takes banks so long to submit the information?  I doubt if it's collated manually, they must have the information available within a few days after the start of the new FY.

intalex

Older banks' systems are likely still programmed to report interest credited within the tax year, much like they were prior to interest being paid gross (introduction of PSA)... looks like newer banks have inherited the same reporting logic...

Aside from NS&I, I'm not even sure any other banks are aware of (and therefore refer to) this "tax all on maturity" rule... those that only offer pay-in interest (i.e. no pay-away option) are hardly likely to volunteer much emphasis on this rule even if were fully aware of it.

Now if banks themselves may not be fully aware of this rule (and adjusting their HMRC reporting obligations accordingly), then to what extent can we expect savers to be aware of it, especially those who have for years followed the same reporting logic and haven't seen this thread on MSE or the one on HMRC's forum...

I can see this heading only one way - disputes and eventual acceptance of both annual and all-at-maturity principles, at least until all banks are fully aligned in their knowledge, published information and reporting logic.

masonic

Ozzig said:

masonic said:

Those statements are both correct and consistent with the rules. MSE Ben's team were told the same. I was asking for examples where they said something different (and it couldn't be attributed to a misunderstanding of the scenario being discussed).

When I spoke to HMRC to confirm the interest I owed tax on, they advised that the fixed bonds I have no access to until maturity had reported interest so I owed tax on it, I made it clear to the advisor and he accepted I had no access to that interest, he then went on to say as it had been declared I needed to pay tax on it.

Well that is an example of an answer from HMRC that is wrong and inconsistent. Thanks. And I can believe you went into it in enough detail for there not to have been a misunderstanding. So they are at the very least giving out wrong information over the phone to some people. Suggests the best way to address this is in writing with reference to SAIM2440.

Ozzig said:
Also from the HMRC help forums ...

Posted 11 months ago by seryozha 

I have read conflicting views on the taxation of interest paid on fixed-term bonds - and am aware of the guidance at SAIM2440. Most bonds credit interest annually and, in many cases, the bond-holder cannot access the funds until maturity, except in exceptional circumstances. In such a case, the interest is apparently taxable in the year of maturity. (See, for example, the NS&I guidance on Guaranteed Growth Bonds.) There is, however, often the option to have the interest paid to another account, in which case it would be taxable when received. What is the position if the terms of a bond give the option of payment to another account but the bond holder elects from the outset to have the interest retained and compounded within the bond? Is the interest all taxable in the year of maturity or does the existence of this option mean that the holder is taxable on the interest in the year it is credited because it was his choice not to have it paid out?

Posted 11 months ago by HMRC Admin 32 

Hi,

As the credit is entered on the account annually, whether it is taken or not, it needs to be reported in the year it is credited.

Thank you.

Yes I remember that post, and there was much celebration by some who were looking for precisely that answer and had been probing for some time the right question to elicit it. However, IIRC, after that response followed another clarification that the saver chose the product that was inaccesssible and therefore the HMRC Admin did a volte-face, as they misunderstood that the interest was accessible, but the saver was just choosing not to withdraw the interest. Half the problem with the HMRC forum discussions is the Admins misunderstanding the precise nature of the accounts in question (besides refusing to acknowledge what the banks are reporting to them is not always interest arising).

Ozzig

masonic said:

Yes I remember that post, and there was much celebration by some who were looking for precisely that answer and had been probing for some time the right question to elicit it. However, IIRC, after that response followed another clarification that the saver chose the product that was inaccesssible and therefore the HMRC Admin did a volte-face, as they misunderstood that the interest was accessible, but the saver was just choosing not to withdraw the interest. Half the problem with the HMRC forum discussions is the Admins misunderstanding the precise nature of the accounts in question (besides refusing to acknowledge what the banks are reporting to them is not always interest arising).

I think I know the one you're referring to, but the one I quoted goes on to mention NS&I growth bonds ... 
https://community.hmrc.gov.uk/customerforums/pt/4c90d80d-db77-ed11-97b0-00155d9c7b3d

The final paragraph from the HMRC admin clarifies with ...

"An individuals tax liability is always calculated using the 'arising basis'. There are very few exceptions to this in the area of remittance. What this means is that income is taxable in the year in which it arises. In the case of GGB's, this would be the date the bonds mature, where you are unable to access the bonds for the whole term, until maturity. If you are able to access the bonds, then the interest would be taxable each tax year, in the year it arises."

Just tried to find the one you're thinking of, 948 results for "fixed bond" but I did find a relatively recent reply (five pager this one), which again contradicts the advice I received when I called  ...

Posted 14 days ago by HMRC Admin 25 

Hi username,
Income tax is applied using the arising basis, that is income is taxed in the year in which it arises.
Where your bonds generate interest every year, which you have access to, you must declare it in the tax year it arises.
If the bonds cannot be accessed until maturity, then only when they mature, can the be declared for tax purposes.
Thank you. 

masonic

Ozzig said:

masonic said:

Yes I remember that post, and there was much celebration by some who were looking for precisely that answer and had been probing for some time the right question to elicit it. However, IIRC, after that response followed another clarification that the saver chose the product that was inaccesssible and therefore the HMRC Admin did a volte-face, as they misunderstood that the interest was accessible, but the saver was just choosing not to withdraw the interest. Half the problem with the HMRC forum discussions is the Admins misunderstanding the precise nature of the accounts in question (besides refusing to acknowledge what the banks are reporting to them is not always interest arising).

I think I know the one you're referring to, but the one I quoted goes on to mention NS&I growth bonds ... 
https://community.hmrc.gov.uk/customerforums/pt/4c90d80d-db77-ed11-97b0-00155d9c7b3d

The final paragraph from the HMRC admin clarifies with ...

"An individuals tax liability is always calculated using the 'arising basis'. There are very few exceptions to this in the area of remittance. What this means is that income is taxable in the year in which it arises. In the case of GGB's, this would be the date the bonds mature, where you are unable to access the bonds for the whole term, until maturity. If you are able to access the bonds, then the interest would be taxable each tax year, in the year it arises."

Just tried to find the one you're thinking of, 948 results for "fixed bond" but I did find a relatively recent reply (five pager this one), which again contradicts the advice I received when I called  ...

Posted 14 days ago by HMRC Admin 25 

Hi username,
Income tax is applied using the arising basis, that is income is taxed in the year in which it arises.
Where your bonds generate interest every year, which you have access to, you must declare it in the tax year it arises.
If the bonds cannot be accessed until maturity, then only when they mature, can the be declared for tax purposes.
Thank you.

Yes, all discussion has eventually come back to this as far as I'm aware. So I can't imagine what the person you spoke to was thinking when they told you otherwise. Unless it was a "computer says no" situation.

Ozzig

masonic said:
Yes, all discussion has eventually come back to this as far as I'm aware. So I can't imagine what the person you spoke to was thinking when they told you otherwise. Unless it was a "computer says no" situation.

I think it was more "agent always says no", he was quite adamant he always gave that answer. There was no willingness to confirm it with anyone other than himself. (He was very helpful otherwise.)

Afterward, hence starting this thread, I double-checked the MSE advice I'd read at the start and spurred on felt either it needed updating or that the weight of MSE could obtain something formal I could refer to when I called them back.

The next step I expect will be a letter to HMRC detailing which declared accounts did allow access and which did not, then wait for a reply. 

masonic

Ozzig said:

The next step I expect will be a letter to HMRC detailing which declared accounts did allow access and which did not, then wait for a reply. 

Hopefully some of the statements made by HMRC admins, and information posted to this thread, will be helpful in setting out your case.

pecunianonolet

Having followed here and having contacted Atom as well to find out a bit more about their reporting, I am still  puzzled with it all. 

I have now decided that I will follow up to my P800 and ask for a full list of interest reported. I have my own interest records so I can cross check and whatever works in my favour is what I go with. 

Being robbed with the frozen tax bands is enough annoyance already so I am surely not investing my own time to intervene about an unclear and broken process between banks and HMRC if it is to my disadvantage. 

As long as the chancellor isn't too concerned about underpaid tax by millions of people I will work in my interest into my pocket.

BeachNut

Ozzig said:

The MSE article here 

https://www.moneysavingexpert.com/savings/personal-savings-allowance/

Advises " You're taxed on savings interest in the tax year you can access it "

Just called HMRC and the advisor confirmed the tax is due when they receive notification from the bank you're been paid it, not when you have access to it.
A 5-year bond would require tax to be paid in each of the five years, on each year's accrued interest.

I know from previously asking here and on the HMRC forum that I will get answers that both contradict and support this, from forum users and HMRC admins.

So, can we ask the MSE team if it is possible to use their might to get formal clarification?
Or at least re-word the article in the meantime?

Personally, I'd rather the former, ideally before I submit my SA for 22-23
But the latter is potentially misleading as it stands.

I suspect there will be a million and one potential replies to my thread all anecdotally proving the advisor I spoke to as being right or wrong and explaining how individuals have only declared accessible interest or have always declared paid interest.

As sated elsewhere,  it depends on whether the funds can be accessed. See HMRC technical manual example 2 'If the terms and conditions of the bond did not allow access until maturity, the interest would arise and be taxed at that point.'

Also:
'If an individual is unable to withdraw or have access to the interest when it is credited to their account, or has a specific product such as a bond, the interest will not arise and therefore they will not be taxable until they have access to the interest.'


My take is that if the T&C's allow access with a penalty, you declare the interest each year from the Tax Certificate.
If the T&C's only the bond to be closed on the death of the account holder, since that is not access to the account holder, all interest can be declared in the year of maturity.

I've always declared interest annually but will be changing this going forward based.

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2440