What and when is the HMRC told about savings interest.

TorkseyFern

This might be a tricky one but I know you guys are super clever and will give me some help here.
This is situation one.
My wife has a fixed 3 year savings account which is due to mature in December 2025.
The account will pay out all the interest earned at this time. Nothing has been touched or withdrawn. She has had no access to any of it.
I believed it would be for her to tell the HMRC in 2026 about this interest earned.
She is currently employed and is PAYE she recieved a tax calculation form for April 2023 to April 2024 showing the amount of interest that the 3 year savings account account earned in that calendar year. They have taxed it accordingly. No problem with this as it is a much smaller tax cost than if the whole lot was to be declared in 2026. Its as if the interest is being earned and then recieved yearly. 
So the questions is.
Why has the bank told the HMRC about this sum prior to maturity bearing in mind it is a no access fixed 3 year savings account. I thought this figure would have only come to light when the account is closed, December 2025. If this is indeed how it works will they tell the HMRC about each individual savings interest amount earned throughout the life of this 3 year fixed savings account. This 3 year fixed savings account actually falls across 4 tax years. I have googled the living daylights out of this and can't come up with any reasonable explanation.
Just for clarity I cant find her P800 for year 24 to 25 so cant comment on whether the savings interest earned between April 2024 and April 2025 was advised to the HMRC.

Dazed_and_C0nfused

TorkseyFern said:

This might be a tricky one but I know you guys are super clever and will give me some help here.
This is situation one.
My wife has a fixed 3 year savings account which is due to mature in December 2025.
The account will pay out all the interest earned at this time. Nothing has been touched or withdrawn. She has had no access to any of it.
I believed it would be for her to tell the HMRC in 2026 about this interest earned.
She is currently employed and is PAYE she recieved a tax calculation form for April 2023 to April 2024 showing the amount of interest that the 3 year savings account account earned in that calendar year. They have taxed it accordingly. No problem with this as it is a much smaller tax cost than if the whole lot was to be declared in 2026. Its as if the interest is being earned and then recieved yearly. 
So the questions is.
Why has the bank told the HMRC about this sum prior to maturity bearing in mind it is a no access fixed 3 year savings account. I thought this figure would have only come to light when the account is closed, December 2025. If this is indeed how it works will they tell the HMRC about each individual savings interest amount earned throughout the life of this 3 year fixed savings account. This 3 year fixed savings account actually falls across 4 tax years. I have googled the living daylights out of this and can't come up with any reasonable explanation.
Just for clarity I cant find her P800 for year 24 to 25 so cant comment on whether the savings interest earned between April 2024 and April 2025 was advised to the HMRC.

HMRC will include the interest the banks have reported to them.

That process is explained here.

https://www.gov.uk/guidance/bank-and-building-society-interest-returns

It is fairly early for 2024/25 to have been reviewed yet (banks don't even have to send the information to HMRC until the end of June after the end of the tax year).

TorkseyFern

So having read this then that means that the bank who has told the HMRC about the amount of interest that has been earned on any particular account in a tax year does not have to specify whether that interest money is being made available to the account holder and this is all above board so basically she wont have to submit any further information it will basically all be done automatically and taxed automatically so to speak for every year where interest is earned by her account. Is that correct?

masonic

Yes, HMRC will assume the interest was accessible unless told otherwise by the taxpayer. This can result in an underpayment of tax and is a flaw in the system.

aroominyork

masonic said:

Yes, HMRC will assume the interest was accessible unless told otherwise by the taxpayer. This can result in an underpayment of tax and is a flaw in the system.

Strictly speaking, is it the responsibility of the taxpayer to ensure they are paying the correct amount of tax in each year, and so should inform HMRC if the savings institution has reported interest before it is accessible? 

DRS1

aroominyork said:

masonic said:

Yes, HMRC will assume the interest was accessible unless told otherwise by the taxpayer. This can result in an underpayment of tax and is a flaw in the system.

Strictly speaking, is it the responsibility of the taxpayer to ensure they are paying the correct amount of tax in each year, and so should inform HMRC if the savings institution has reported interest before it is accessible? 

Yes though I think there may be one provider (NS&I?) who pays attention to this accessibility thing.

Most people are not aware of it (and that probably includes people at HMRC).

poseidon1

TorkseyFern said:

So having read this then that means that the bank who has told the HMRC about the amount of interest that has been earned on any particular account in a tax year does not have to specify whether that interest money is being made available to the account holder and this is all above board so basically she wont have to submit any further information it will basically all be done automatically and taxed automatically so to speak for every year where interest is earned by her account. Is that correct?

Correct.

Furthermore the bank should have issued  to her year end certificates of deposit earned in each tax year , so that she can see for herself what has been reported to HMRC. If they dont  send this in the post, should certainly be available to download online.

masonic

aroominyork said:

masonic said:

Yes, HMRC will assume the interest was accessible unless told otherwise by the taxpayer. This can result in an underpayment of tax and is a flaw in the system.

Strictly speaking, is it the responsibility of the taxpayer to ensure they are paying the correct amount of tax in each year, and so should inform HMRC if the savings institution has reported interest before it is accessible? 

Yes it is. Anecdotally, those who have tried have found this quite challenging, and one was even asked to submit evidence that the their account didn't permit withdrawals.

Those in self assessment can simply report the correct figure in their tax return.

RG2015

poseidon1 said:

TorkseyFern said:

So having read this then that means that the bank who has told the HMRC about the amount of interest that has been earned on any particular account in a tax year does not have to specify whether that interest money is being made available to the account holder and this is all above board so basically she wont have to submit any further information it will basically all be done automatically and taxed automatically so to speak for every year where interest is earned by her account. Is that correct?

Correct.

Furthermore the bank should have issued  to her year end certificates of deposit earned in each tax year , so that she can see for herself what has been reported to HMRC. If they dont  send this in the post, should certainly be available to download online.

Does every bank issue year end certificates?

For some banks, I am sure that I have previously trawled through 12 monthly statements to get my annual interest amount.

Ocelot

aroominyork said:

masonic said:

Yes, HMRC will assume the interest was accessible unless told otherwise by the taxpayer. This can result in an underpayment of tax and is a flaw in the system.

Strictly speaking, is it the responsibility of the taxpayer to ensure they are paying the correct amount of tax in each year, and so should inform HMRC if the savings institution has reported interest before it is accessible? 

I've done that many times. They've always ignored my letters and taxed me yearly anyway.