The Daily Mail has a headline this morning that says:
Savings tax shambles: New rules will soon let you earn £1,000 interest tax-free - yet nobody can explain details of how the reforms will work
The essence of the article is that the Mail notes the new savings tax allowance, which is little more than a desperately complicated extension of the ISA arrangements, and then notes that if anyone does owe tax as a result of receiving their savings income tax free when they actually have a liability to pay the resulting arrangements could be expensive, complex in the form of a tax return and lead to an exposure to tax penalties that are largely the result of an unnecessary tinkering with the system.
As a matter of fact the Mail does overstate its case: many of those with such additional liabilities will in any event be higher rate tax payers who would have had additional liabilities under the old system but the point they make is till a valid one, and increasingly typical of George Osborne. A tinkering designed to grab a headline for a day (which it did, from the Mail for a start) results in real cost and confusion that will outweigh the benefit for many, especially when many people have unused ISA allowances.
There are occasions when I will agree tax simplicity is of definite use. This is one of them. I hope George takes note before 16 March.
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As someone who potentially now has to track small amounts of interest and probably find myself just over the £1000,I now risk finding myself becoming an inadvertent criminal and having to complete a tax form – I’m not pleased, even if I do save £200.
I would expect that you’ll be fine. HMRC don’t want tax returns if you have less than a couple of thousand in interest: what they would normally do is take account of the underpayment (which they will know about from the information given them by your bank) and code it out in a future tax year.
That is, assuming they know about your bank accounts. It would be worth checking the end of year reconciliation they send you next summer to make sure they have included all your interest and other income – but of course I assume you do that every year anyway.
Let HMRC know and they should be able to collect through adjustments to your tax code
For the majority of taxpayers, all the complication will be at HMRC’s end.
HMRC are already issuing PAYE coding notices showing an estimate of the interest receivable and the effect of the savings allowance – including whether it is restricted or not. It is trivial to go back to HMRC and change this – they give contact details on the notice. Of course many taxpayers will be nervous about this, and the waiting times don’t help, but taxpayers’ reticence to speak to HMRC is a whole issue in itself.
HMRC get details of interest from banks, so if a taxpayer does nothing and the PAYE code is wrong, then the under/over payment will be picked up in the reconciliation process and fed into a future tax code. This is a somewhat clumsy process, but it does mean that unless HMRC issue notices to submit tax returns taxpayers should have few or no problems. Hopefully the new digital tax accounts will make it easier to keep PAYE codes up to date, and so will help quite a bit here.
A basic rate taxpayer with less than £1,000 of interest should notice no difference at all. A pensioner living off a lot of interest may have an issue, but there is still the savings rate of income tax which covers a lot of these people.
To be honest, I’m not sure that this is much more complicated than the current system, where someone with unused personal allowance will be getting tax over-deducted and so relies on HMRC to repay the tax. At least the change shifts the issues to people further up the income scale, which is (ceteris paribus) a good thing.
The main problem here is that taxpayers don’t like to engage with HMRC, they assume (or at least worry) that things will go wrong, and HMRC don’t explain the position well enough to reassure them.
This last is partly because the legislative process is too rushed: why is all this coming into force now, rather than next year when people will have had a chance to absorb the changes and write up suitable guidance?
“The main problem here is that taxpayers don’t like to engage with HMRC, they assume (or at least worry) that things will go wrong, and HMRC don’t explain the position well enough to reassure them.”
The relevant question here, and it is question which impacts on other elements under discussion here, is why is that the case?
The reason is quite simple and it has to do with that snake oil practice imported from the private sector of expecting to be able to do everything with nothing. HMRC, like just about every other organisation you can name, has been hollowed out when it comes to the main asset – real human beings with not just the qualifications and knowledge but also with the necessary experience and expertise.
When something as complex, personal and occasionally stressful as tax is concerned the normal citizen, as with most other similar human transactions, wants to deal with another human being face to face so they can see the whites of their eyes. They don’t want to be chasing around on a metal micky phone system being passed around until they eventually find the poor harressed understaffed and underpaid minion with what the corporate management have determined is the correct algorithm crib sheet script for that generic problem or issue. Because more often than not that crib sheet algorithm script, which exists in order to “save money” (a euphanism for centralising everything to fewer locations so there is no option of visiting a local office/depot etc, cutting staff to the minimum and below leaving insufficient real people to deal with the workload level, and siphoning off those savings into the pockets of managers through bonuses), does not deal with your problem.
And woe betide anyone on the other end of that metal micky mouse system if they actually try to deal with reality and deviate one iota from the script. Because if there is one thing the corporate mindset will not tolerate it is experience. Spend “too long” on a call and you end up risking being next out of the door.
That’s why not only is the interaction so alienating but also why so many things go wrong, fall through the deliberately left gaps, and never get done either properly or at all. The notion that under or over payments will get picked up in a reconciliation exercise in due course or that it is the taxpayers fault for being reticent is just a fanciful notion to excuse the centralisation, understaffing and the jettisoning of experience.
The Government’s bail-in plans starting to take shape, I see. The only money left in this country is in private bank deposits and equity tied up in property (value increasing because that is Government policy), and we’ve probably had all the quantitative easing that the system that withstand.
Step 1: warmly encourage people to save £10,000 “tax free”; Step 2: at some yet-to-be-appointed-hour, banks to be saved again, this time by private depositors, by allowing the banks to skim off 75% of these – now larger than they would have been before the Government invited people to save more “tax-free” – tax-free savings pots. As happened in Greece.
Step 3: even more people’s homes repossessed because the Government has bailed-in the banks from their savings.
In the meantime, HMRC has been given the power to “attach” money to itself, hasn’t it, direct from taxpayers’ bank accounts?
Well I’ll call that cynical
But at least interesting
I should imagine that governments get only one “shot” at killing the bank bail-in fatted calf, so they would want the calf to be as fat as possible on the day people wake up to find their bank accounts have been frozen and then emptied: 75% to save the banks again and the remaining 25% taken by the HMRC.
I don’t think anyone can say this won’t happen, before the next General Election. Yes, I am a bit cynical about banks and lenders and HMRC because I have “scars” from fighting their attempts to take money from me that is not due to them – but, so far, I am winning. 🙂
“The main problem here is that taxpayers don’t like to engage with HMRC, they assume (or at least worry) that things will go wrong, and HMRC don’t explain the position well enough to reassure them.”
It’s even more basic than that. Taxpayers have terrible problems in getting through to helplines and, if they do, speaking to people who are frequently inadequately trained to be able to respond appropriately. And, as for correspondence, we all know how well that’s going at the moment.
Most of the time, it’s become increasingly frustrating to deal with HMRC as a practitioner, eg a week or two ago, I called a helpline to identify where I might send a written response to an HMRC communication that contained no return address only to be told by the respondent I would have to rely on HMRC’s recording of the call, so I can only imagine how frustrating the experience of an individual trying to sort an issue out with HMRC is most likely to be. In which case any individual perception that “things will go wrong” is probably pretty reasonable and can’t be changed until HMRC get their act together; a forlorn hope it would seem in light of continuing staff cuts.
If I had to deal with HMRC as an individual
Well said