Tax point on savings interest

masonic

Monanore said:

@masonic

I wouldn't expect HMRC to fine anyone for making an honest mistake, but they would charge interest at 8% on the underpayment if it were picked up in the future.

Am I right in thinking the only time an underpayment would exist is if in the final year the amount pushed you into a higher rate, otherwise the interest is surely the same ?  So how would this be identified and who would do the work, bearing in mind the year(s) affected will have been agreed and signed off ?

An underpayment would also happen where some or all of the interest would be covered by the PSA in the earlier years, but all of that interest would not be covered by the PSA in the year of maturity. A basic rate taxpayer whose only savings were £10k in a 5 year fix at 5% would have a tax liability of just over £300 in the year of maturity where interest was not accessible, but if interest were accessible they'd have no liability. This is the more common scenario I'd think.

I don't have any answers to the question 'how would I get caught?' I'm not here to validate anyone's view that they'd get away with it. All I can say is that I wouldn't ever knowingly supply false information to HMRC. But as I have mentioned several times, the majority of savers do not need to provide HMRC with any information, and will accept unquestioningly whatever calculation is done in a P800.

I am not aware of any agreement and sign-off process that occurs that prevents HMRC investigating a previous tax year.

Monanore said:

For all multi-year fixed term accounts I've opened recently, I've had interest paid away.

But surely you then lose the compounded interest ?

I obtain compound interest by reinvesting manually into other products.

Monanore said:

Banks and building societies provide sufficient information about their products for a saver to determine how to declare their interest.

I don't think it's that simple. For instance, I saw a post from someone who had contacted Coventry BS and was told that Coventry had agreed with HMRC that an account of this type's interest was charged to tax annually.

Also I think you yourself in a previous post ( 2023, but I can't find it again ) said that accounts where the option to pay away existed but was not taken up could qualify for charging annually.

That's not correct and I was wrong in my earlier post (I think I remember putting that theory forward at one time). It was based on a misinterpreted comment in the HMRC forum, which was (eventually) clarified. The only way interest becomes taxable is if it is made available to the recipient to withdraw at the time it is credited. If there was a prior contractual agreement that it cannot be withdrawn then it doesn't arise for tax at that time. If the account has an option to withdraw with a penalty, then the interest is taxable when it is credited because it can be withdrawn. That is the situation with several high street banks offering lower than table-topping rates, and perhaps this was the case with the particular Coventry account you mention.

Monanore said:

Yet HMRC wrongly assumes all interest credited was available. According to their own rules and tax law, this is wrong.A lawyer would make a mockery of HMRC telling a taxpayer that he was at fault for declaring interest in exactly the same way as they themselves used on their final calculation, agsreed and signed off after year end !

If you've reached the point where you need a lawyer to stand up in court and defend you, then you've already gone well past my appetite for hassle. I enjoy having no contact from HMRC at all.

1spiral

I have seen much discussion on this forum regarding taxation of interest on fixed term accounts. What I have never seen is the mention of how this must also affect notice accounts where the interest must be compounded. e.g. Oxbury's recent notice account offerings had no option to pay the interest away. The only way to withdraw it is to serve notice on the interest on the day of crediting. This means that for a 90 day notice account, any interest credited after 5th Jan (6th in a leap year) is not available in the current tax year and should therefore presumably be added to the following years income.

masonic

1spiral said:

I have seen much discussion on this forum regarding taxation of interest on fixed term accounts. What I have never seen is the mention of how this must also affect notice accounts where the interest must be compounded. e.g. Oxbury's recent notice account offerings had no option to pay the interest away. The only way to withdraw it is to serve notice on the interest on the day of crediting. This means that for a 90 day notice account, any interest credited after 5th Jan (6th in a leap year) is not available in the current tax year and should therefore presumably be added to the following years income.

I would tend to agree with your assessment. As well as not allowing pay away, Oxbury does not allow a penalty in lieu of notice, so interest would arise 90 days after being credited. I suppose this is less likely to change someone's tax liability compared with multiple years interest becoming taxable at the same time. If you feel like asking in the HMRC forum, do drop a link to the thread!

1spiral

masonic said:

 I suppose this is less likely to change someone's tax liability compared with multiple years interest becoming taxable at the same time.

I agree with this, I was thinking more along the lines of the PITA of needing to manually calculate your annual interest from Jan 6th to Jan 5th when statements are generated from April 6th to April 5th. With the term bonds, you're either (incorrectly) declaring the interest as presented by the organisation or (correctly) just adding up the annual figures at the end of the term.

masonic

1spiral said:

masonic said:

 I suppose this is less likely to change someone's tax liability compared with multiple years interest becoming taxable at the same time.

I agree with this, I was thinking more along the lines of the PITA of needing to manually calculate your annual interest from Jan 6th to Jan 5th when statements are generated from April 6th to April 5th. With the term bonds, you're either (incorrectly) declaring the interest as presented by the organisation or (correctly) just adding up the annual figures at the end of the term.

Yes, it would be a pain. What I have come to do now is set up a spreadsheet for each tax year with a row for each account I hold and columns for each month (using 6th-5th to align with the tax year). I then load it up once per month and enter any interest credited in that month. For fixed term, I add it to the appropriate column for when it arises, which in the past would have been the month of maturity in some cases. I haven't held any notice accounts, but under this system the interest could just be offset by the appropriate notice period. I suppose an alternative is to enter as one row per interest 'event' (credit date, arising date, tax year) and then generate a pivot table. That would enable the precise date to be calculated and used to put into the right tax year.

bjbyorkshire

I agree that NS&I answer their phones almost instantly now,  a chat bot answers but if you say “speak to an advisor”. It will put you through to a real live person. But!!!! That person seems unable to send me the interest on a Guaranteed Growth bond which matured on the 11 April 2023.  I have been sent the same statement on 2 occasions which gives me 2 years of capitalised interest but doesnt say how much the 3 year bond  needs declaring to HMRC.  It matured in 2023 and I have since rolled it over again, with interest, to 2026.  It must surely need declaring or at least adding to my other interest for the tax year 2023/24 but HMRC tax advisors cannot seem to send me this on a year end statement.  

I feel as if I am going mad trying to get this info.  Yes, I can take away the initial investment sum from the end of bond interest at 2023 and get a figure of interest for 3 years but why can’t I get this on paper from HMRC in order to add to my other interest amounts sent to me by 6 building societies.

Any answers gratefully received.

masonic

bjbyorkshire said:

I agree that NS&I answer their phones almost instantly now,  a chat bot answers but if you say “speak to an advisor”. It will put you through to a real live person. But!!!! That person seems unable to send me the interest on a Guaranteed Growth bond which matured on the 11 April 2023.  I have been sent the same statement on 2 occasions which gives me 2 years of capitalised interest but doesnt say how much the 3 year bond  needs declaring to HMRC.  It matured in 2023 and I have since rolled it over again, with interest, to 2026.  It must surely need declaring or at least adding to my other interest for the tax year 2023/24 but HMRC tax advisors cannot seem to send me this on a year end statement.  

I feel as if I am going mad trying to get this info.  Yes, I can take away the initial investment sum from the end of bond interest at 2023 and get a figure of interest for 3 years but why can’t I get this on paper from HMRC in order to add to my other interest amounts sent to me by 6 building societies.

Any answers gratefully received.

It would have been better to have posted this together with the other information in your other thread: https://forums.moneysavingexpert.com/discussion/6531021/ns-i-interest

HMRC won't have received all of the returns from savings providers for the 2023/24 tax year yet, so may not be in a position to tell you what NS&I have reported to them. I think your understanding is correct that the interest earned for the first 3 years should be declared in 2023/24 and that will be the difference between the closing balance and the amount you originally deposited. In your other thread, you state you don't self-assess, so you don't need to take any action yourself until you receive a calculation from HMRC, and only then if you disagree with it. If there is no taxed owed due to your low total income (as suggested in your other thread), then this probably won't even happen.

NS&I should be able to provide a closing statement showing all transactions.

bjbyorkshire

Thank you Masonic, it makes sense that HMRC may not have received all of the 23/24 Info from NS&I but surely NS&I have the year end figures at their disposal now.  I have received the tax figures for 2023 from Skipton, Kent Reliance, Nationwide, etc, etc so why not from NS&I.  I am trying to ascertain whether I will just go ever so slightly over the £17,250 threshold by which I will have to pay tax on some of my interest.  My husband who does pay tax also needs this same year end figure as he most certainly will be taxed on his savings interest.

Sorry I hijacked this thread but my question did seem to be on the same theme as this one and I can confirm that HMRC answer their phones almost immediately now.  Just not able to sent me the tax figures for the 3 years that I think they should have by now.  I just wondered whether anyone else with 3 year bonds have received the tax figures for 23/24 from NS&I.

Thanks so much for your input on this.

masonic

bjbyorkshire said:

Thank you Masonic, it makes sense that HMRC may not have received all of the 23/24 Info from NS&I but surely NS&I have the year end figures at their disposal now.  I have received the tax figures for 2023 from Skipton, Kent Reliance, Nationwide, etc, etc so why not from NS&I.  I am trying to ascertain whether I will just go ever so slightly over the £17,250 threshold by which I will have to pay tax on some of my interest.  My husband who does pay tax also needs this same year end figure as he most certainly will be taxed on his savings interest.

Sorry I hijacked this thread but my question did seem to be on the same theme as this one and I can confirm that HMRC answer their phones almost immediately now.  Just not able to sent me the tax figures for the 3 years that I think they should have by now.  I just wondered whether anyone else with 3 year bonds have received the tax figures for 23/24 from NS&I.

Thanks so much for your input on this.

If you are referring to a certificate of interest (tax statement), then I do not think there is actually a requirement to provide this where no tax has been deducted at source. Most providers do still produce them, some only upon request, but I have known one provider take until November to come up with one in the past. If I were you I'd use the regular account statements and add up the interest. Your husband can expect to receive a calculation from HMRC in due course, and you will get one only if you need to pay some tax.

bjbyorkshire

Thanks Masonic, much appreciated.