Tax on interest not received because of early closure penalty

Reed_Richards

sheramber said:

The penalty is not taxable so is ignored for tax purposes.

Of course the penalty is not taxable, the question is whether it is deductible.  In the UK no.  In the US I think yes it is.

eskbanker

talexuser said:

My point was one of natural justice. To take the above example for simplicity, you start with 10 grand get 500 in interest you are taxed on, but only actually get 10250 back because of the penalty. Yes the capital may have been in the small print, but not in the headline penalty description that virtually 100% of people would never have realised the consequenses. Yes, it's buyer beware but someimes the law is an !!!!!! that just does not make common sense, and paying tax on income you never had is just that..

I suspect that we're in diminishing returns territory (in more ways than one!) but you're paying tax on income you believed you never had if you failed to read and understand the product terms, which obviously isn't the same thing at all....

ColdIron

talexuser said:

My point was one of natural justice.

The principle of fair treatment? The duty to give someone a fair hearing?

Banks that are regulated by the FCA are required to treat customers fairly

https://www.fca.org.uk/firms/fair-treatment-customers

You have also received a fair hearing by the FoS, an independent arbitrator

To take the above example for simplicity, you start with 10 grand get 500 in interest you are taxed on, but only actually get 10250 back because of the penalty.

Consider the case where you exit the arrangement after, say, a few weeks and have accrued very little interest. It would not be possible to pay the penalty from the interest. You could even get back less than you deposited

Yes the capital may have been in the small print

It was

but not in the headline penalty description

That's why T&Cs exist. Headline descriptions exist to give the retail customer a summary of the key points and not have to 'scan though the reams of small print' when all they want is enough to assess whether it's what they want

that virtually 100% of people would never have realised the consequenses. 

Are you sure about that? You've been on this forum longer than I and it's a familiar topic

Yes, it's buyer beware but someimes the law is an !!!!!! that just does not make common sense,

I have no axe to grind here and I sympathise with your predicament but the contractual agreement (that you confirmed) is clear and unambiguous

and paying tax on income you never had is just that..

At risk of repetition, you are not paying tax on income you never had, you are paying tax on the interest that you received

Reed_Richards

Olinda99 said:

certainly

https://www.aldermore.co.uk/savings-accounts/personal-savings-accounts/cash-isas/fixed-rate-cash-isas/1-year-fixed-rate-cash-isa/?utm_medium=affiliate&utm_campaign=5511&utm_source=Moneyfacts.co.uk Limited&irclickid=xjtyO-1hBxyPUzWxlVyqYxb:UkFVqUyBA2rw2I0&irgwc=1

Aldemore 1yr fixed rate ISA


 

Can I withdraw money?

• Yes, you can withdraw money from this tax year or previous tax years if you need to, subject to a deduction of 90 days' interest. 

Best I can find is here:  https://www.hsbc.co.uk/savings/savings-explained/

What is a fixed rate savings account?

If you have got long term savings goals in mind, a fixed rate savings account may be right for you. You may be able to get a higher rate of interest compared to an instant access savings account, but you’ll need to lock away your money for a set amount of time. This can be anything from 1 to 3 years, so it’s important to be sure you won’t need access to your savings during the term. If you do access your money, you may need to pay a fee, or receive a loss of interest.  

masonic

boingy said:

eskbanker said:

boingy said:

I'd have absolutely no qualms about declaring the actual amount I received on a tax return (not that I do tax returns any more). Let HMRC challenge it if they want to.

Your choice, but few would recommend knowingly making false declarations to government agencies, regardless of flimsy rationalisations....

It's all part of the game. Accountants all over the land routinely test the boundaries and usually get away with it. If HMRC disagree with your self-assessment they point out the errors and you pay the difference. Despite what they like you to think there is no penalty or fine or jail sentence at that point. That only happens if you continue to argue or delay making the extra payment. The truth is that they rarely challenge this stuff because they don't have the staff. Mostly they are just happy that you have submitted your self-assessment form on time. 

If you underpay tax through not declaring all of your income, then HMRC is entitled to charge 8% interest on the underpayment from the date it would have been due to the date you pay it. They can also add a penalty charge. It is not simply a case of paying the difference.

You may or may not be correct that you have a reasonable chance of getting away with low level tax fraud due to them not having the resources to go after everyone, but this goes beyond merely testing the boundaries into discussions that cannot take place on this forum.

masonic

Reed_Richards said:

Best I can find is here:  https://www.hsbc.co.uk/savings/savings-explained/

What is a fixed rate savings account?

If you have got long term savings goals in mind, a fixed rate savings account may be right for you. You may be able to get a higher rate of interest compared to an instant access savings account, but you’ll need to lock away your money for a set amount of time. This can be anything from 1 to 3 years, so it’s important to be sure you won’t need access to your savings during the term. If you do access your money, you may need to pay a fee, or receive a loss of interest.  

Suspect if you delve into the T&Cs of a specific product, rather than the marketing info, it will be presented somewhat differently. I couldn't see an obvious way to look into the T&Cs without applying, but they contradict themselves in the FAQ:

If the fee was indeed 90 days' interest, then it wouldn't be possible to get back less than you invested.

In these circumstances, I believe the customer would have a valid complaint against the savings provider for the amount of tax they paid as a result of the misunderstood terms. The description above corresponds to a fee based upon, and charged to, the balance of the account.

eskbanker

masonic said:

Reed_Richards said:

Best I can find is here:  https://www.hsbc.co.uk/savings/savings-explained/

What is a fixed rate savings account?

If you have got long term savings goals in mind, a fixed rate savings account may be right for you. You may be able to get a higher rate of interest compared to an instant access savings account, but you’ll need to lock away your money for a set amount of time. This can be anything from 1 to 3 years, so it’s important to be sure you won’t need access to your savings during the term. If you do access your money, you may need to pay a fee, or receive a loss of interest.  

Suspect if you delve into the T&Cs of a specific product, rather than the marketing info, it will be presented somewhat differently. I couldn't see an obvious way to look into the T&Cs without applying, but they contradict themselves in the FAQ:

If the fee was indeed 90 days' interest, then it wouldn't be possible to get back less than you invested.

In these circumstances, I believe the customer would have a valid complaint against the savings provider for the amount of tax they paid as a result of the misunderstood terms. The description above corresponds to a fee based upon, and charged to, the balance of the account.

A "fee of 90 days' interest" doesn't really make sense - it's either a fee or a loss of interest!  So, given the statement about potentially getting back less than invested, this would imply to me that it's not a loss of interest, but yes, scope for debate!

boingy

masonic said:

boingy said:

eskbanker said:

boingy said:

I'd have absolutely no qualms about declaring the actual amount I received on a tax return (not that I do tax returns any more). Let HMRC challenge it if they want to.

Your choice, but few would recommend knowingly making false declarations to government agencies, regardless of flimsy rationalisations....

It's all part of the game. Accountants all over the land routinely test the boundaries and usually get away with it. If HMRC disagree with your self-assessment they point out the errors and you pay the difference. Despite what they like you to think there is no penalty or fine or jail sentence at that point. That only happens if you continue to argue or delay making the extra payment. The truth is that they rarely challenge this stuff because they don't have the staff. Mostly they are just happy that you have submitted your self-assessment form on time. 

If you underpay tax through not declaring all of your income, then HMRC is entitled to charge 8% interest on the underpayment from the date it would have been due to the date you pay it. They can also add a penalty charge. It is not simply a case of paying the difference.

You may or may not be correct that you have a reasonable chance of getting away with low level tax fraud due to them not having the resources to go after everyone, but this goes beyond merely testing the boundaries into discussions that cannot take place on this forum.

Taxation is not black and white and the written rules are not the end of the story. I have decades of experience of running businesses, being self employed and employing accountants. HMRC are indeed entitled to charge interest, apply penalties etc but they don't.

I'm an engineer and I think there should be only one way to pay tax but it simply is not true and it's not fraud. It's being tax efficient. I doubt you'd find a tax specialist who will advise otherwise. I don't expect you to agree because you have already decided that the line is immovable but it really isn't. Have a great day. 

masonic

boingy said:

masonic said:

boingy said:

eskbanker said:

boingy said:

I'd have absolutely no qualms about declaring the actual amount I received on a tax return (not that I do tax returns any more). Let HMRC challenge it if they want to.

Your choice, but few would recommend knowingly making false declarations to government agencies, regardless of flimsy rationalisations....

It's all part of the game. Accountants all over the land routinely test the boundaries and usually get away with it. If HMRC disagree with your self-assessment they point out the errors and you pay the difference. Despite what they like you to think there is no penalty or fine or jail sentence at that point. That only happens if you continue to argue or delay making the extra payment. The truth is that they rarely challenge this stuff because they don't have the staff. Mostly they are just happy that you have submitted your self-assessment form on time. 

If you underpay tax through not declaring all of your income, then HMRC is entitled to charge 8% interest on the underpayment from the date it would have been due to the date you pay it. They can also add a penalty charge. It is not simply a case of paying the difference.

You may or may not be correct that you have a reasonable chance of getting away with low level tax fraud due to them not having the resources to go after everyone, but this goes beyond merely testing the boundaries into discussions that cannot take place on this forum.

Taxation is not black and white and the written rules are not the end of the story. I have decades of experience of running businesses, being self employed and employing accountants. HMRC are indeed entitled to charge interest, apply penalties etc but they don't.

I'm an engineer and I think there should be only one way to pay tax but it simply is not true and it's not fraud. It's being tax efficient. I doubt you'd find a tax specialist who will advise otherwise. I don't expect you to agree because you have already decided that the line is immovable but it really isn't. Have a great day. 

I don't think you can seriously expect any reasonable person to believe that every tax specialist will advise that under-reporting your interest in this manner is safe to do. Even if so, many have received tax advice that has led to them being pursued for tax evasion (rightly). So to the extent that some tax advisers operate in grey areas and take risks with their clients' money, I can believe what you are saying. One may choose their tax adviser on the basis of their own proclivities. 

Personally, the tiny difference in tax is simply not worth it to risk having the hassle of dealing with an investigation, even if I were temped to try it on, which I am not. We'll just have to agree to disagree that knowingly submitting figures generated contrary to settled law isn't fraud.

Olinda99

can someone give an example of a non-ISA account where early closure is permitted subject to a penalty ?