ISA flexibility: withdrawing current tax-year subscriptions and replacing elsewhere

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81957860#Comment_81957860

I don't think it's a conclusion as such…

As HMRC said, they won't be able to see anything yet, it's not handled in real time! ISA managers submit annual returns later in the year, after which the HMRC compliance checks are run, which will identify excess subscriptions, etc.

The Prosper rep was talking nonsense, although to be fair, they're not alone in that, detailed knowledge of ISA rules isn't what it ought to be for many providers. The fact remains that, at the end of the 2025/26 tax year, you had £20K of that year's money in the Prosper ISA, so that's what they'll report to HMRC, and what HMRC will pick up as invalid, by virtue of exceeding your annual contribution allowance that had already been fully used elsewhere.

As you suspected, withdrawing and then redepositing £20K achieves absolutely nothing, I'm afraid, so the app is correct that you haven't used any 2026/27 allowance.

Being misadvised by the Prosper rep won't cut any ice with HMRC, but might get you some 'go away' money if you later complain to Prosper, although the erroneous advice hasn't actually caused you any financial loss as such, it just didn't give you a benefit you thought you'd get.

Jazzking

https://forums.moneysavingexpert.com/discussion/comment/81957868#Comment_81957868

It sounded like they were just going to make an adjustment behind the scenes - they said:

Please go ahead and withdraw the overpaid amount. One this is done you can go ahead and re-deposit back into the cash ISA. Please let me know when this has been completed so that I can make sure the reporting is correct from our side.

Maybe as it was within the monthly reporting window they can just re-allocate the 25/26 deposit to 26/27? In any case I don't have a huge extra amount to put in at the moment so I think I'll wait til later in the year, possibly check with HMRC in Nov/Dec so if there are decent rates available next March I will have confidence that I can deposit into 26/27 without going over.

Jazzking

I'm happy to be honest, I managed to get the 4.7% rate and £100 cashback which is the best place for my cash at the moment. I've spoken to both HMRC and Prosper and followed the 'advice' of Prosper so have shown actions to try and rectify the error.

If it turns out later on I need to pay some tax on the interest earned, so be it, but I shall definitely be keeping the Prosper agent discussion as evidence if needed.

Thanks both of you for your help and comments - very much appreciated on this and many other threads I see you pop up in :)

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81957878#Comment_81957878

The guidance documentation for ISA managers doesn't mention any facility to correct previous year errors in the current year, even if this is just by a day or two, so I'd question whether such a retrospective adjustment would actually be permitted, but at this stage I guess it's just a case of waiting until later in the year to hear what HMRC have to say on the matter (if anything):

https://www.gov.uk/guidance/close-void-or-repair-an-isa-if-youre-an-isa-manager

masonic

At best this would result in the oversubscription for 25/26 being unaffected (they cannot fraudulently complete their return to HMRC saying you didn't subscribe when you did, or denying you held funds in the ISA at the end of the tax year when you did). While any adjustment this year would result in your 26/27 allowance being unnecessarily lost.

dcs34

https://forums.moneysavingexpert.com/discussion/comment/81957893#Comment_81957893

Surely this is no different to an ISA provider having to "manually adjust" an app/IT glitch that misallocated deposits into the wrong tax years.

From memory the ISA providers are to provide the 'net' position of deposits made in a tax year for flexible ISA products. Presumably this doesn't happen instantaneously and so Prosper may still have time to amend before submission. Alternatively there is probably an amendment feature that Prosper can use to retrospectively correct "mistakes". Otherwise genuine errors just propagate forwards into future years.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81958112#Comment_81958112

There's clearly a gap between the end of the tax year and the submission of the annual return, which must be within 60 days but is never going to be instantaneous.

However, the fact that an ISA manager would have the capability and time to alter data doesn't mean that falsifying records is permitted - the cited guidance documentation does explain how certain investor errors can be repaired but doesn't refer to allowing erroneous contributions to be reversed out in the following year, unless you've found something that would support that interpretation?

masonic

https://forums.moneysavingexpert.com/discussion/comment/81958112#Comment_81958112

The ISA provider can correct this: https://www.gov.uk/guidance/how-to-open-an-isa-as-an-isa-manager#cancellation

Prosper has a 30 day cancellation period for their S&S ISA (no details for the cash ISA, but presumably the same): https://www.prosper.co.uk/documents/terms-and-conditions-v5 (see Annex 4, 12.1)

This would require the account to be closed and for the customer to reapply for a new cash ISA. Prosper would be unable to accept ISA subscriptions without the fresh application. So it does not appear to be what has been suggested upthread.

No dates have been mentioned in the preceding discussion, but presumably the Prosper ISA was opened within the last 30 days.

It would be for @Jazzking to decide whether to attempt to make things right by this method, or allow HMRC the opportunity to forgive the error.