Income tax on interest for higher rate tax payer

Income tax on interest for higher rate tax payer

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Haven't done tax for years and a friend has asked me a question.  She has been a higher rate tax payer for about 3 years and mainly earns through PAYE.  She has been getting interest on a bnak account of about £200 p.a but has not done a tax return as she didn't realise she needed to.  Now after a change of circumstances she has been contacted by HMRC asking her about income.

Clearly she owes a small amount of tax for the past 3 years - what's the best thing to do - write to them explaining her mistake?  Will they fine her or just collect the O/S tax?

Replies (8)

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By blok
01st Dec 2011 08:21

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I would write a nice but apologetic letter to hmrc advising them of the situation . it is likely that you will be issued with a twelve month suspended penalty. Pay the tax and interest asap

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By thisistibi
01st Dec 2011 08:47

Really Blok?

I was led to believe that (although I agree the tax is strictly owed) that HMRC weren't interested in higher rate tax payers will small amounts of savings interest, as the additional cost of running self assessment for such little tax wasn't worthwhile.

That point seems reinforced by HMRC's guidance on when you need to complete a tax return, which states that you need to receive £10,000 or more income from savings and investments or £2,500 or more income from untaxed savings and investments in order to fall within self assessment (assuming your other income falls within PAYE).

So personally, I wouldn't declare anything for prior years and would provide HMRC the info for the period which they are requesting it.  In any case, even if a 100% penalty was levied for faliure to declare the income, it doesn't seem like a material sum.

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By JCresswellTax
01st Dec 2011 09:16

Give them what they want.............no more!

The OP never stated the period they were asking for, but on the basis that HMRC have received details of the interest from the bank, they are obviously querying this.

I would just reply to the letter answering their questions, no more.

It is probably the case that they will just include a deduction in her tax code from now on with an estimate, to collect the higher rate tax due for the year.

I do agree with Blok in that a nice apologetic letter providing the requested interest details is the best way forward.

No need for this client to get involved in Self Assessment.

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By MarionMorrison
01st Dec 2011 09:17

Suspended Penalty

Eh?  Never seen such a thing in tax contexts.  We'll fine you £500 suspended for a year if you get your Returns in on time?  

Actually that sounds like quite a good idea...

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By blok
01st Dec 2011 11:49

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I received an HMRC enquiry notice last month for a client who had left £450 of bank interest out of his income tax return for 09/10. The immmediate penalty was 30%. I discussed this with the inspector who advised me to write in asking for the deferred penalty, which he said was the norm now.

I did the appeal letter and HMRC duly replied back waiving the penalty contingent on 12 months compliance by the taxpayer.

 

I never said that the OP needs to complete a self assessment.

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Replying to nomeepk:
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By thisistibi
01st Dec 2011 13:37

Hang on

blok wrote:

I received an HMRC enquiry notice last month for a client who had left £450 of bank interest out of his income tax return for 09/10. The immmediate penalty was 30%. I discussed this with the inspector who advised me to write in asking for the deferred penalty, which he said was the norm now.

I did the appeal letter and HMRC duly replied back waiving the penalty contingent on 12 months compliance by the taxpayer.

I never said that the OP needs to complete a self assessment.

Hang on - you are using an example of somebody within SA who failed to declare income, versus somebody not in SA who has trival income.  Not the same?!

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By MarionMorrison
01st Dec 2011 13:08

Oo-er

Novel to me - I look forward to our first brushes with this new regime.

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By Steve Kesby
01st Dec 2011 14:41

@ thisistibi

I don't think the distinction you're making matters.

Whilst the HMRC guidance you've referred to says that a Tax Return doesn't need to be completed, a taxpayer still has an obligation to notify chargeability under S.7 of TMA 1970.

There are then 2 penalty charging provisions; one for people who have filed an incorrect Return and one for people who haven't notified chargeability.  The effect though will be the same.

The OP's client has failed to notify chargeability.  If she had, the tax would have been collected via her PAYE code, rather than through SA.  She's still liable to a penalty, unless she can show reasonable care.

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