Tax on interest not received because of early closure penalty

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  • masonic
    masonic Posts: 23,245 Forumite
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    edited 14 November 2023 at 8:41PM
    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
    eskbanker Posts: 30,939 Forumite
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    masonic 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
    boingy Posts: 1,330 Forumite
    First Post Name Dropper
    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.  :p
  • masonic
    masonic Posts: 23,245 Forumite
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    edited 14 November 2023 at 9:36PM
    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.  :p
    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
    Olinda99 Posts: 1,240 Forumite
    First Post First Anniversary Name Dropper
    can someone give an example of a non-ISA account where early closure is permitted subject to a penalty ?
  • masonic
    masonic Posts: 23,245 Forumite
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    edited 14 November 2023 at 10:28PM
    Olinda99 said:
    can someone give an example of a non-ISA account where early closure is permitted subject to a penalty ?
    Lloyds bank 2 year fixed rate saver would be one example. I understand the high street banks often permit early closure with penalty to their non-ISA fixes. Most top paying savings institutions do not.
  • Olinda99
    Olinda99 Posts: 1,240 Forumite
    First Post First Anniversary Name Dropper
    Thanks for that - unusual to allow closure of a fixed rate bond. 
  • masonic said:

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

    Some financial institutions have conditions that make that true.  E.g. Natwest https://www.natwest.com/savings/isa-overview/fixed-isa.html
    The Early Closure Charge will be the lower of the amount of interest earned on your account or 90 days’ interest.
    Possibly the details T&Cs make it clear that the Early Closure Charge is a fee but the explanation here is ambiguous.  But again this is an ISA where fee or reduced interest is just an academic distinction.

    Reed
  • masonic
    masonic Posts: 23,245 Forumite
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    edited 14 November 2023 at 10:37PM
    masonic said:

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

    Some financial institutions have conditions that make that true.  E.g. Natwest https://www.natwest.com/savings/isa-overview/fixed-isa.html
    The Early Closure Charge will be the lower of the amount of interest earned on your account or 90 days’ interest.
    Possibly the details T&Cs make it clear that the Early Closure Charge is a fee but the explanation here is ambiguous.  But again this is an ISA where fee or reduced interest is just an academic distinction.
    I think you'd need to squint quite a bit to see the "Early Closure Charge" as a reduction in interest rather than a charge offset by interest, even if the last few words could have been clearer.
  • boingy
    boingy Posts: 1,330 Forumite
    First Post Name Dropper
    masonic said:
    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.  :p
    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.
    I can tell you haven't had much experience of dealing with HMRC. Whenever there is any doubt, and there is in this case, all tax specialists and most accountants will err in favour of the client and be prepared to negotiate from there. It's not under-reporting. It's not fraud. It's not tax evasion. It's reality. The rules really are not as not black and white as you think but, yes, we can agree to disagree. I've probably derailed this thread enough.  :D
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