Fixed Bond Interest Tax Bill Despite Interest Not Being "Accessible"

Monanore

HMRC's reply to karl10247 is very interesting.  

It seems to confirm that, for PAYE, their standard practice is to use the BBSI return figures to assess the tax charge, but if a taxpayer wishes to pay the tax at the end of the term on accounts that don't allow withdrawals they will accommodate the request.  This makes sense, because changing the process to identify accessibility would be complex, take up HMRC resources and not bring any real benefit.  Also there is clarity for most taxpayers because the tax charge aligns with their interest statements. Remember, too, that before 2016-17 institutions were deducting tax at source annually and the question of the SAIM rule sometimes requiring postponement of charge to the final year for non-accessible accounts was never an issue for all those years.

masonic

Monanore said:

HMRC's reply to karl10247 is very interesting.  

It confirms that, for PAYE, their standard practice is to use the BBSI return figures to assess the tax charge, but if a taxpayer wishes to pay the tax at the end of the term on accounts that don't allow withdrawals they will accommodate the request.  This makes sense, because changing the process to identify accessibility would be complex, take up HMRC resources and not bring any real benefit.  Also there is clarity for most taxpayers because the tax charge aligns with their interest statements. Remember, too, that before 2016-17 institutions were deducting tax at source annually and the question of the SAIM rule sometimes requiring postponement of charge to the final year for non-accessible accounts was never an issue for all those years.

There has been a clear and consistent message from the HMRC forum that taxpayers do not get to choose their preferred tax treatment.

However, HMRC refuses to acknowledge that the correct taxation of these accounts can only happen when the taxpayer voluntarily declares the interest wasn't accessible.

In many cases it makes no difference to the overall outcome, but where it does the taxpayer has overpaid or underpaid tax.

karl10247

OP here with an update and i need some advice please.

So i sent a package on 12th December with cover letter and bank statements proving that the untaxed interest is not available to me until maturity. I sent it special recorded delivery 24hr tracked service through Royal Mail. Ive waited patiently for HMRC to respond but never heard anything. Today i see theyve changed my tax code to K487X! So i went back and checked my package was delivered ok. To my horror the package was lost in the North West Midlands delivery centre aaargggggggggggghhhhh!!!!!!!

So what are my options now? Should i run down the post office and resend my package or something else? 

I am conscious the self assessment deadline is only 10 days away EDIT and i dont know how to do a self assessment, ive never done one before!

Dazed_and_C0nfused

karl10247 said:

OP here with an update and i need some advice please.

So i sent a package on 12th December with cover letter and bank statements proving that the untaxed interest is not available to me until maturity. I sent it special recorded delivery 24hr tracked service through Royal Mail. Ive waited patiently for HMRC to respond but never heard anything. Today i see theyve changed my tax code to K487X! So i went back and checked my package was delivered ok. To my horror the package was lost in the North West Midlands delivery centre aaargggggggggggghhhhh!!!!!!!

So what are my options now? Should i run down the post office and resend my package or something else? 

I am conscious the self assessment deadline is only 10 days away EDIT and i dont know how to do a self assessment, ive never done one before!

Why do you think Self Assessment is relevant?

If you have been sent a return or notice to file a return then what is stopping you filing the return?

If you haven't been sent a return or notice to file a return then why do you think the 31 January deadline is relevant?

karl10247

Thanks for your reply. Further update - I've just come off the phone with HMRC, apparently they did receive my package on 17th December despite Royal Mail saying it was lost (phew), at least that's one less thing to worry about.
The advisor told me i can expect a response by 14/02, I guess a 2 month response time is standard.
She also advised that the tax code change is to collect tax in the current year estimated from the (incorrect) untaxed interest in 2023/2024. She has asked me to work out a real estimate of taxable interest I expect to receive this year so she can change my tax code to suit.

Finally I told her the banks will probably keep reporting untaxed interest every year, she told me id have to write a letter every year and advised that I should contact my bond providers and tell them not to report on interest retained in my savings bonds (her words not mine).

@Dazed_and_C0nfused - I haven't been sent a return or notice to file a return at all, I'm only going off what someone said earlier in the thread about lodging one. I read online that they need to be in by 31st Jan.

Dazed_and_C0nfused

karl10247 said:

Thanks for your reply. Further update - I've just come off the phone with HMRC, apparently they did receive my package on 17th December despite Royal Mail saying it was lost (phew), at least that's one less thing to worry about.
The advisor told me i can expect a response by 14/02, I guess a 2 month response time is standard.
She also advised that the tax code change is to collect tax in the current year estimated from the (incorrect) untaxed interest in 2023/2024. She has asked me to work out a real estimate of taxable interest I expect to receive this year so she can change my tax code to suit.

Finally I told her the banks will probably keep reporting untaxed interest every year, she told me id have to write a letter every year and advised that I should contact my bond providers and tell them not to report on interest retained in my savings bonds (her words not mine).

@Dazed_and_C0nfused - I haven't been sent a return or notice to file a return at all, I'm only going off what someone said earlier in the thread about lodging one. I read online that they need to be in by 31st Jan.

That is the deadline for people who have been issued with a return or notice to file a return.

If you haven't been that deadline, as far as filing a return is concerned, cannot apply to you.

Albermarle

Finally I told her the banks will probably keep reporting untaxed interest every year, she told me id have to write a letter every year and advised that I should contact my bond providers and tell them not to report on interest retained in my savings bonds (her words not mine).

I imagine you would not get a very positive response from your savings provider to this request .....
Or more likely whoever you speak to will be clueless about what you are talking about !

karl10247

Appreciate your replies, so can anyone recommend a path forward for me please?

masonic

You can submit a voluntary tax return. There is no requirement to do this by the deadline, although in future years you'd want to do it as early as possible to avoid tax code adjustments based on the incorrect figures.

karl10247

So I've spoken to around 6 different HMRC advisors over the instant message chat now. All but one seemed to think you must pay tax on interest even if it remains locked away in a multi-year fixed term only accessible at maturity. Also, following the advice from HMRC I contacted each of my fixed term banks and asked them not to report annual interest that was not accessible to me - I'm sure you can guess how that went down. They informed me they have a legal responsibility and must keep reporting on an annual basis. Only ONE bank offered to provide a letter for the HMRC stating the interest reported was not made available to me. Given that this mess will repeat year on year and will get very confusing and stressful I contacted HMRC a final time and decided to bite the bullet and pay my tax annually - not easy when you haven't actually received the income you need to pay tax on! I will also have them reset my tax code and likely submit a self assessment 2024/2025 onwards.

This is a systemic issue and not one that i can fix. The banks advertise multi-year fixed bonds with compounding interest only accessible at maturity and here on MSE you'll read "only pay tax on interest accessible to you" however each of 6 different banks have told me they must report the interest earned each year and it will count as taxable income.

I wont be taking out any more multi-year fixed term bonds again, its been too stressful and taken a lot of time to resolve. For any tax-efficient savers out there who intend on taking out multi-year bonds with the hope of paying all the tax at maturity (which might suit there situation), DONT! No matter how careful you read T&Cs and select your banks they will report the interest each year as a taxable income received.