HMRC Enhances Savings Data Collection to Improve Tax Accuracy
Her Majesty’s Revenue and Customs (HMRC) is implementing new measures to gain a more direct view of individuals’ savings accounts. The objective is to ensure accurate assessment of tax liabilities on interest earned, particularly in light of rising interest rates.
Banks to Provide Enhanced Identifiers
Under proposed regulatory changes, major financial institutions including HSBC, Barclays, Lloyds, NatWest, Santander, and Chase will be required to furnish additional identifiers for account holders, such as National Insurance numbers. This move aims to modernize data submission processes and improve their timeliness, thereby enhancing the accuracy of tax calculations and reducing discrepancies.
Jonathan Athow, Director of Strategy and Policy at HMRC, explained that the initiative is designed to equip tax authorities with comprehensive data. “HMRC is asking financial institutions to provide additional identifiers, such as National Insurance numbers. We also want to modernise how data is submitted and improve timeliness,” Athow stated. He further elaborated that these changes are intended to “improve matching rates and reduce the already small number of mismatches.”
Improved Taxpayer Communication on Savings Income
Beyond data collection, HMRC is also focusing on enhancing how it communicates with taxpayers regarding savings income. Future tax calculations provided to individuals will include more granular information on interest received and how this data has been factored into their tax assessments. This aims to foster greater confidence in the tax system and simplify the process for taxpayers to understand their financial obligations.
“The aim is to give taxpayers greater confidence in the system and make it easier for them to check and understand their tax position,” Athow noted. “This sets out the different accounts and associated amounts of interest so that people could see the information we have used in working out their tax.” HMRC is currently developing plans to integrate this enhanced data into taxpayer communications.
Impact of Rising Interest Rates on Taxable Savings
The increase in interest rates has led to higher savings income for households, consequently increasing the amount of taxable interest. This trend has made the system for identifying and collecting tax on savings interest more critical, according to HMRC analysis.
Athow pointed out that the majority of individuals do not pay tax on their savings interest. Basic-rate taxpayers (20%) can earn up to £1,000 in interest tax-free through their Personal Savings Allowance, while higher-rate taxpayers (40%) have a tax-free allowance of £500. Additional-rate taxpayers (45%) do not benefit from a tax-free allowance.
“ISAs allow interest to be received entirely tax-free. Even where interest is taxable, the personal savings allowance significantly reduces the number of people who pay tax on their savings,” Athow explained. “In total, only around one in six people receiving taxable savings income have any tax to pay on it.” He clarified that HMRC’s process for non-self-assessment individuals does not rely on voluntary taxpayer reporting, but rather on direct information received from financial institutions under existing legal powers.
HMRC’s Direct Recovery Powers Yield Significant Revenue
In parallel, it has emerged that HMRC has recovered an additional £13 million from taxpayers by leveraging its “direct recovery” powers, which allow the seizure of funds from individuals owing less than £1,000. These powers, confirmed by Chancellor Rachel Reeves last year, have been exercised 12 times, resulting in the recovery of £225,000, averaging £18,750 per debtor.
Following a public warning about these powers, HMRC successfully collected £13 million between September of the previous year and early May. Under these rules, tax officials can access bank accounts to seize funds, provided that at least £5,000 remains in the account to cover essential living expenses during the Cost of Living crisis.
Nimesh Shah, Chief Executive of accountancy firm Blick Rothenberg, ed reservations about the utility of these direct recovery measures. “I remain unconvinced that this is a sensible tool for HMRC to use, especially at a time when businesses and individuals are struggling with an increased tax burden – as a direct result of government tax changes, so it seems a double blow,” Shah commented.
A spokesperson for HMRC stated, “Most people pay tax on time and in full – but it’s right that we seek to recover tax from the tiny minority who can afford to pay but refuse to.” The spokesperson added, “More than £13m of tax has already been paid or brought into payment plans for public services due to the deterrent effect of this measure.”
