Fixed Rate Bonds - confused by HMRC advice

intalex

@fiddlesticks0 unfortunately for multi-year bonds where interest is credted-in for compounding, there is no "automatic" solution to meet the rules. A self-assessment compliant with "tax arisen at maturity" is probably the lowest-maintenance solution, but even that could lead to follow-up from HMRC where you'd need to explain yourself, although from what I'm reading on other threads, so far this doesn't appear to be happening.

Letters from the helpful bank seem like solid backup if there is a follow-up from HMRC, along with the argument "how is one supposed to fund the cash outflow of a tax payment for income which is not possible to access yet".

I'm not sure there is any more to it until the grey area is resolved through appropriate changes by the relevant authorities.

fiddlesticks0

https://forums.moneysavingexpert.com/discussion/comment/81966930#Comment_81966930

Thanks - I don't know how many more times I can keep saying this however, but I have no intention to want to try and reverse however HMRC apply the tax, after the fact. If I have a 5 year bond which the provider and HMRC's official rules say should be taxed at maturity, but somehow they are allowed to tax annually, I have no desire to go through the process of getting them to try and reverse this decision. If they apply tax in year 1, I would have no confidence that they wouldn't do so again in years 2,3 and 4 as well, regardless of it being challenged in Y1, requiring challenging each time, getting documents from providers etc etc each time. This is not something I have any wish to do for one multi year bond, let alone numerous ones, every year, with no guarantee of succes or of how the rules will be applied. It just doesn't seem in any way low-maintenance to me.

I would agree that this just sems to be the (farcical) situation. If I can trust that bonds which say they only apply/pay interest at maturity actually do so, and that bonds which apply/pay interest annually into the bond, despite the rule saying the opposite, will probably be taxed annually, at least that's something.

masonic

At the risk of sounding like a broken record, HMRC can only act on the information it receives. If you know the information is not correct due to the contractual terms of your account, then it is your responsibility to correct the record.

It is not that HMRC is "allowed" to not follow the rules, it is that they are allowed to use all of the information available to them to collect the tax they think is due.

If you are refusing to engage with HMRC and simultaneously complaining about what HMRC is doing, then that is a you problem.

fiddlesticks0

https://forums.moneysavingexpert.com/discussion/comment/81966964#Comment_81966964

It's not that I don't want to engage with HMRC - I just don't have the ability to face the prospect of trying to overturn their decisions, time after time, year after year, which all may not change a thing. So I'm resigned to accepting whatever they decide - that doesn't however stop me however trying to understand more about this mess of a system.

As for complaining - are you saying this isn't justified, considering the lack of the so-called rules being applied correctly or consistently? If HMRC can only act on the information they're given it's up to them to get the relevant info from the providers about the product to make sure they make the correct decision according to the rules, as it's clearly not happening a lot of the time currently. It's hardly a non-issue when there's pages of people complaining and confused about this system in this thread, the same in many others here and many more in various other forums. If there's a thread about praising how great, consistent and clear-cut this system is, I'd love to see it.

masonic

HMRC don't have the authority to get information other than that specified in the Finance Act directly from providers. It is the taxpayer's legal responsibility to provide any additional information to enable HMRC to collect the correct tax from them.

If your complaint is that you don't like the law then that is not a complaint for HMRC, it's a complaint for your local MP with a view to changing UK tax legislation.

As has now been pointed out plenty of times, there are several solutions to this issue to avoid it happening "year after year", so it is a taxpayer's choice whether to subject themselves to it or avoid it in future once they know about it.

fuzzzzy

You need to interrogate T&Cs before you take out fixed rate products.

If you choose a provider who CREDITS all interest at maturity and no interest is credited and compounded annually, then it should be safe to say that HMRC will only be informed of the interest at maturity and you will be taxed at maturity.

If you choose a fixed rate account that credits annually, even if you compound the interest and it is not accessible, it is safe to say that HMRC will be informed of this interest credit annually and you will taxed annually. We all know this is incorrect but it is safe to say it will happen. If you are uncomfortable accepting this scenario, because you want to follow the correct tax rules with no hassles then you should have your annual interest paid away if that is allowed under the T&Cs.

Edit: And you should be able to look at the products you already have and work out how you expect them to be taxed going forward. It is not really a case of having to wait until the end of the tax year to see what happens..

fiddlesticks0

https://forums.moneysavingexpert.com/discussion/comment/81967020#Comment_81967020

I haven't said anything about not liking the law - I just want it to be clear and consistently applied. It is not.

As I have also said plenty of times, most of the problems for me are locked in, for products i have already taken out, for which the rules don't seem to be applied as advertised. Any appeals after the fact are not an option for me, maybe you have the ability to do so, I certainly don't.

As this discussion is going around like a record and you don't wish to sound like a broken one, we're probably best leaving it there.

intalex

https://forums.moneysavingexpert.com/discussion/comment/81966950#Comment_81966950

It is what it is and with all the comments on here, you should hopefully know best what to do next to suit your priorities…

PS> I've had my fair share of rants over this inconsistency, even though I have my non-ISA bonds paying out interest monthly, i.e. I avoid the problem products/parameters. With all my sympathy, you appear to be stuck with the problem products/parameters on multiple accounts, but the only way you can help yourself is to accept the issue, think objectively about what others have written, and make your choice on how to proceed.

masonic

https://forums.moneysavingexpert.com/discussion/comment/81967042#Comment_81967042

Once again, HMRC has the legal right to tax you based on the information it receives, and the information it receives from banks and building societies is set out in law. You have the legal obligation to disclose to HMRC any information it requires to tax you correctly.

You are complaining that you don't like this situation. Therefore you don't like the law.

All of HMRC's actions in relation to taxing you are lawful, consistent and predictable. Can you can point to a law that HMRC is breaking? Every saver opening a multi-year fix with accumulating interest and no access is by default treated consistently and predicably. It is also absolutely clear that in the absence of information that the interest is inaccessible (which can only come from the taxpayer), interest will be assumed to arise when it is credited. Therefore, the information HMRC receives through statutory reporting is incomplete in this scenario, which is where your obligation kicks in.

Knowledge of the system allows anyone to avoid the obligation to interact with HMRC. Continuing to open accounts subject to this treatment would be a deliberate choice.

intalex

Out of interest, is there any purpose of the BBSI reporting other than for HMRC to be informed independently of taxable income so that they can expect the same from the taxpayer?