Interest reported to HMRC in wrong year

Kim_13

MinstrelWelly said:

So, my take is that the banks are following the instructions, in reporting the interest credited each year (in the tax year that its credited). Meanwhile, HMRC are treating it as taxable in the year reported (which is the year in which the interest is credited, but not the year its taxable!)

Or put it another way. HMRC are assuming that banks will report interest in the year that it is taxable, even though they haven't told the banks to do that via their instructions.

This is my understanding. So you haven't been unlucky in your choice of banks and there would be no point in complaining about them doing what they are legally required to do (even though that thing often produces an incorrect tax bill which needs to be sorted out by the customer.) It does also work both ways: a multi year fix with all the interest taxed at maturity when it is accessible produces a higher tax bill in the majority of cases, since there is only one year's PSA/Personal Allowance to use against interest that was accrued over multiple tax years. 

You could choose to keep all your taxable multi year fixes with NS&I, since they pay all the interest at maturity and thus it is taxed when it is accessible as is supposed to be the case. Or only use ISA fixes, so that the only interest being reported to HMRC as having been credited is that earned on normal savings, which is also accessible and taxable in that year.

We can't just decide to deal with another tax authority that doesn't issue contradictory requirements, so if you want to ensure that HMRC are being informed of when interest is accessible / are only informed in the tax year in which the interest is accessible and taxable, the best thing to do would be to raise the inconsistency with your MP in the hope that parliament changes the rules in order to simplify the tax system.

fuzzzzy

dunstonh 

3) How can I proceed from here? Neither HMRC, nor the banks, perceive a probem, or at least, its not there problem. How can I get my tax corrected? At the moment, my only thought, is to raise a formal complaint with each of HMRC/Paragon/JN. HMRC for not ensuring that the banks are reporting correctly, and the banks for not reporting correctly (but it would help to be absolutely clear what the banks are supposed to be reporting)

If the bank is applying the interest annually, then there is nothing wrong.

Not sure what you would have to complain about 

If the OP is sure that their interest is not accessible until 26/27 then I think they should make a complaint to HMRC because they are being taxed in the wrong tax year.

MinstrelWelly

Thanks for all your thoughts and suggestions.

I've received money via inheritance, that I'm moving into ISAs over a number of years. During those years, its in various savings accounts, and I've taken great care to ensure that I generate no more than 6000 interest in any tax year, and have kept my pension drawdown at 12570 to give me the full starter rate for savings (5000) along with the personal allowance (1000). So, having taken great care to ensure that no tax is due on the interest, its galling to have HMRC charge tax incorrectly anyway, which will cost me £600 for 24/25, which I won't recoup in another tax year.

I think I have to talk to HMRC again. I will ask whether self-assesment would give me a way round this.

My options if this gets me nowhere are

• Raise a formal complaint with HMRC
• Raise with a consumer champion (e.g. Katie Morley of the Telegraph)
• (And now I can add) raise with my MP

Should MSE be advising that tax is due at the end of term, when HMRC aren't applying that (even though that's the rule)?

Should/would MSE take up the issue, given that it must affect a lot of people, and probably most of them haven't noticed?

masonic

I have seen comment elsewhere that MSE is currently investigating this, so it may be worth contacting them via the news contact email on the main site ( https://www.moneysavingexpert.com/news/ )

The current position is that banks must report interest credited whether or not it arises for tax, and taxpayers must be taxed on interest when it arises for tax, whether or not that's when banks report it to HMRC. This means the data cannot be relied upon for tax purposes.

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

If other options fail, it is your legal right to submit a voluntary tax return.

fuzzzzy

MinstrelWelly said:

Thanks for all your thoughts and suggestions.

I've received money via inheritance, that I'm moving into ISAs over a number of years. During those years, its in various savings accounts, and I've taken great care to ensure that I generate no more than 6000 interest in any tax year, and have kept my pension drawdown at 12570 to give me the full starter rate for savings (5000) along with the personal allowance (1000). So, having taken great care to ensure that no tax is due on the interest, its galling to have HMRC charge tax incorrectly anyway, which will cost me £600 for 24/25, which I won't recoup in another tax year.

I think I have to talk to HMRC again. I will ask whether self-assesment would give me a way round this.

My options if this gets me nowhere are

• Raise a formal complaint with HMRC
• Raise with a consumer champion (e.g. Katie Morley of the Telegraph)
• (And now I can add) raise with my MP

Should MSE be advising that tax is due at the end of term, when HMRC aren't applying that (even though that's the rule)?

Should/would MSE take up the issue, given that it must affect a lot of people, and probably most of them haven't noticed?

I'm not surprised that you are annoyed having taken so much care to organise your finances so that no tax is due.

Please keep the thread updated on what the outcome is.

Kim_13

Those who are negatively affected do contact HMRC and have the interest taxed correctly, via the interest arises for tax purposes when it is accessible rule. It doesn’t help if the first person you get doesn’t understand what the problem is, or how it should work. Others have noticed and decide to let it lie, since they would in their circumstances pay more tax if it were done correctly. This isn’t right, but it happens.

The taxable when accessible rule must have come about since there will be a minority of people who do not have the means to pay the tax until they can access the account to withdraw the amount of tax that they owe. And it likely pre-dates PSA, so HMRC would have been receiving the tax year by year even if the saver couldn’t access their portion of the interest. It was 40%+ payers and non-taxpayers who would then have to take action so that they and HMRC received the correct amounts.

The majority of people probably earn a few hundred in interest a year at most (especially when rates were lower) and therefore it doesn’t matter to them if things are being done incorrectly behind the scenes. They aren’t being taxed anyway.

MinstrelWelly

Thanks. I've suggested a story to MSE via that link (which I've had to delete from the quote, because I'm too new to post links!)

MinstrelWelly

Thanks. Yes, I will try HMRC again, and hope to get someone who can/will help resolve the issue. We all know the joy of HMRC phone calls 

Bigwheels1111

I had the opposite issue, I opted for annual payout as my income was 4k as a carer.
So the interest would not be taxable each year and give me a nice income as the total was under £18,570.
As the amount was over 10k self assessment was necessary.
This solves any issues, banks over or under reporting, some banks still don’t report interest.
Raisin and H&L from memory.

As I went back to work this year what a mess HMRC made of my tax code.
They lowered my code by 7k, owed interest and carers allowance which I no longer receive.
I must admit I was very lucky the call to HMRC was a very helpful lady who was very knowledgeable and understanding.
She reset my tax code by deducting 13 weeks of carers allowance, over paid tax was returned via wages
after a few weeks and I’m left to self assess in April, regarding interest.

Call again as hopefully get a more understanding call handler.

saajan_12

Albermarle said:

dunstonh said:

1) Is the correct process for the banks to report interest in the year that its due, rather than the year its credited (or are they supposed to report in the year credited, but tell HMRC which year its taxable in)?

Can you clarify what you perceive to be "due"?    Are you thinking the maturity date?

Many fixed-term deposits will pay interest annually, even if they do not mature that year.   

2) Do any of the banks get this right? I.e. are all banks getting it wrong, or have I just got unlucky with my choice of banks?

I've never noted an issue and in most cases, the interest is annual even when the FTD isnt.

3) How can I proceed from here? Neither HMRC, nor the banks, perceive a probem, or at least, its not there problem. How can I get my tax corrected? At the moment, my only thought, is to raise a formal complaint with each of HMRC/Paragon/JN. HMRC for not ensuring that the banks are reporting correctly, and the banks for not reporting correctly (but it would help to be absolutely clear what the banks are supposed to be reporting)

If the bank is applying the interest annually, then there is nothing wrong.

Not sure what you would have to complain about 

The OP is complaining because they expected to be taxed on the interest at maturity only, and not in the intervening years. 
Which for inaccessible interest seems to be what should happen ( but often does not)

Note the info in the savings section of MSE>>

Imagine you save £10,000 in a five-year fix which pays 4.5%.

• Option 1: Interest is paid out of the savings account to your bank account each year, meaning you can access it when it's paid.
  
  Here, you'd earn £450 each year for five years. As you'd be earning less interest than the basic- and higher-rate personal savings allowance (PSA) limits (£1,000/year and £500/year respectively), you'd pay no tax on the interest.
  
  After the five years, you'd have earned a total of £2,250.
  

• Option 2: Interest is paid back into the fixed account each year, and you can't access it till the account matures.

  
  Here, you'd earn interest on your interest, meaning that after five years you'd have earned £2,460 – about £200 more than with the first option. However, because you can't access the interest until the end of the five-year fixed term, all the interest counts towards the fifth year's PSA, and far exceeds both the basic- and higher-rate limits. This means you'd have to pay tax – about £292 for basic-rate taxpayers, £784 for higher-rate.
  
  This means that, overall, basic-rate taxpayers would be £80 worse off than with the first option, higher-rate taxpayers a massive £570 worse off.

Yes if their income was stable. If soemone received all their interest in a year they were barely working, they would be on a lower tax band and could be better off with option 2. Or if they were at the threshold where they lose personal allowance or child benefit every year instead of only in 1 year. 

Ultimately this isn't about what saves most people tax. If HMRC publish one rule, taxpayers may plan their funds accordingly and expect the published rule to be followed.