Joint account affecting Payments on Account
Discussion
Mrs 9xx inherited some cash from her dad's estate a couple of years ago, and some was deposited in a building society account. At the time I suggested having a joint account so that she would benefit from the increased protection this affords depositors.
Unfortunately, I didn't realise that this would mean that HMRC would automatically assume that I was the beneficiary of half of the interest.
My initial research indicates that getting this changed is not trivial. Subsequently we have changed the account so that Mrs 9xx is the sole account holder. I am now liable for the tax on 50% of the interest. Fair enough - my mistake.
However, Taxcalc is now saying that I need to make a payment on account for FY25/26, which equates to about 40% of the interest on half of the deposited money, i.e. the interest that was attributed to me. My proposed response is to reset this amount to zero and explain that I am no longer the joint account holder, hence there is not going to be any underpaid tax liability.
i) Does my interpretation of the facts as regards Taxcalc seem right?
ii) Is my proposed course of action the best one?
Unfortunately, I didn't realise that this would mean that HMRC would automatically assume that I was the beneficiary of half of the interest.
My initial research indicates that getting this changed is not trivial. Subsequently we have changed the account so that Mrs 9xx is the sole account holder. I am now liable for the tax on 50% of the interest. Fair enough - my mistake.
However, Taxcalc is now saying that I need to make a payment on account for FY25/26, which equates to about 40% of the interest on half of the deposited money, i.e. the interest that was attributed to me. My proposed response is to reset this amount to zero and explain that I am no longer the joint account holder, hence there is not going to be any underpaid tax liability.
i) Does my interpretation of the facts as regards Taxcalc seem right?
ii) Is my proposed course of action the best one?
I am not an accountant - but
1. If the interest was paid to a joint account then you are jointly liable for the tax - HMRC assumes 50/50 split although I think there is a mechanism for unequal splits - more forms to fill in!! However, you (as a couple) will pay exactly the same total amount of tax except that you will have two "tax free" Personal Savings Allowances before the liability kicks in - how much this is depends on your marginal rates of tax - £500 or £1000.
2. If the interest was earned during the 2025/6 tax year then you would normally declare it when you complete a tax return at the end of that year and any tax payable would be due by 31 January 2027. I think any tax "on account" would only be payable if the interest was earned in the previous tax year (2024/5) to avoid any penalty/interest charges.
Edited to add
3. If your overall tax situation is more complicated because of e.g. multiple sources of income then it would be best to take professional advice from a real accountant
1. If the interest was paid to a joint account then you are jointly liable for the tax - HMRC assumes 50/50 split although I think there is a mechanism for unequal splits - more forms to fill in!! However, you (as a couple) will pay exactly the same total amount of tax except that you will have two "tax free" Personal Savings Allowances before the liability kicks in - how much this is depends on your marginal rates of tax - £500 or £1000.
2. If the interest was earned during the 2025/6 tax year then you would normally declare it when you complete a tax return at the end of that year and any tax payable would be due by 31 January 2027. I think any tax "on account" would only be payable if the interest was earned in the previous tax year (2024/5) to avoid any penalty/interest charges.
Edited to add
3. If your overall tax situation is more complicated because of e.g. multiple sources of income then it would be best to take professional advice from a real accountant
Edited by Beggarall on Monday 5th January 20:46
Edited by Beggarall on Monday 5th January 20:47
9xxNick said:
Taxcalc is now saying that I need to make a payment on account for FY25/26, which equates to about 40% of the interest on half of the deposited money,
Taxcalc is pretty good but it's not going to sort out a mess for you.Are you filing online through Taxcalc or just using it to do the sums and then sending a paper return?
If you're filing through Taxcalc then that's exactly the same as if you'd sent a paper return to HMRC and they'd done the calculations. There's no turning back. I think that if you've got stuff wrong the only way to sort it out is to contact HMRC direct. You could, of course, try the Taxcalc helpdesk first.
Back to basics - yes, systems will always see a joint account is "joint" unless you tell them otherwise. If you want to persuade HMRC that you were "just a signatory" on the OH's account you'll need to be darned sure the bank statements are consistent with that position.
9xxNick said:
i) We're on different marginal tax rates, unfortunately in this case. Me 40%, she 20%.
ii) It was earned in the 24/25 tax year. The Payment on Account presumably relates to the fact that Taxcalc thinks I will get a similar payment in 25/26, which I won't.
If the interest was earned in the 2024/5 tax year and you know exactly how much tax you owe then I would either pay it now or submit a tax return (or an amended tax return) for that year - but pay it it by 31 January. Then at least they won't come after you with interest or penalties.ii) It was earned in the 24/25 tax year. The Payment on Account presumably relates to the fact that Taxcalc thinks I will get a similar payment in 25/26, which I won't.
9xxNick said:
I will be paying the tax I inadvertantly incurred for the 24/25 tax year. It's the Payment on Account I'd rather avoid since I'll be paying tax on interest that I will never get (not that I actually got any of the interest on which I'm paying tax for the 24/25 year, to be fair).
It's easy to submit a form to HMRC and reduce payments on account. Just be careful no to overdo it because they'll hit you with (hefty) interest if it eventually transpires more tax should have been paid on account.Here's the link you need,
https://www.gov.uk/guidance/claim-to-reduce-paymen...
Panamax said:
It's easy to submit a form to HMRC and reduce payments on account. Just be careful no to overdo it because they'll hit you with (hefty) interest if it eventually transpires more tax should have been paid on account.
Here's the link you need,
https://www.gov.uk/guidance/claim-to-reduce-paymen...
I’ve done that a couple of times with no problemsHere's the link you need,
https://www.gov.uk/guidance/claim-to-reduce-paymen...
HMRC (perhaps not unreasonably) don’t know that a windfall is not an ongoing change of circumstances, you just need to tell them
The Payments on Account for 2025/26 are initially based on the Self Assessment tax liability for 2024/25.
For example, if your 2024/25 Self Assessment tax bill was £2,400.00, then the two 2025/26 Paymants on Account for 2025/26 will be set at £1,200.00 each.
However, the assumption here is that your Self Assessment income and tax arising for 2025/26 will be similar to 2024/25. This does not necessarilly have to be the case. If you are sure that your Self Assessment income for 2025/26 is going to be lower than for 2024/25, you are allowed to have the two 2025/26 Payments on Account reduced to a more appropriate level. In fact, they can be reduced to Nil if that is the correct situation.
There is a section on the 2024/25 tax return where you can apply to reduce the Payments on Account for 2025/26.
For example, if your 2024/25 Self Assessment tax bill was £2,400.00, then the two 2025/26 Paymants on Account for 2025/26 will be set at £1,200.00 each.
However, the assumption here is that your Self Assessment income and tax arising for 2025/26 will be similar to 2024/25. This does not necessarilly have to be the case. If you are sure that your Self Assessment income for 2025/26 is going to be lower than for 2024/25, you are allowed to have the two 2025/26 Payments on Account reduced to a more appropriate level. In fact, they can be reduced to Nil if that is the correct situation.
There is a section on the 2024/25 tax return where you can apply to reduce the Payments on Account for 2025/26.
Eric Mc said:
The Payments on Account for 2025/26 are initially based on the Self Assessment tax liability for 2024/25.
For example, if your 2024/25 Self Assessment tax bill was £2,400.00, then the two 2025/26 Paymants on Account for 2025/26 will be set at £1,200.00 each.
However, the assumption here is that your Self Assessment income and tax arising for 2025/26 will be similar to 2024/25. This does not necessarilly have to be the case. If you are sure that your Self Assessment income for 2025/26 is going to be lower than for 2024/25, you are allowed to have the two 2025/26 Payments on Account reduced to a more appropriate level. In fact, they can be reduced to Nil if that is the correct situation.
There is a section on the 2024/25 tax return where you can apply to reduce the Payments on Account for 2025/26.
I was going to suggest the same. However as the OP seems to be submitting via TaxCalc perhaps TaxCalc doesn't give you the option to reduce POA ?For example, if your 2024/25 Self Assessment tax bill was £2,400.00, then the two 2025/26 Paymants on Account for 2025/26 will be set at £1,200.00 each.
However, the assumption here is that your Self Assessment income and tax arising for 2025/26 will be similar to 2024/25. This does not necessarilly have to be the case. If you are sure that your Self Assessment income for 2025/26 is going to be lower than for 2024/25, you are allowed to have the two 2025/26 Payments on Account reduced to a more appropriate level. In fact, they can be reduced to Nil if that is the correct situation.
There is a section on the 2024/25 tax return where you can apply to reduce the Payments on Account for 2025/26.
OP - are you able to log in directly on the HMRC website and try amending your submission?
Taxcalc does allow you to amend the POA amount, and provide the reason that you're doing it.
I was contemplating this overnight and this morning, to test my working theory, I have temporarily reduced the total amount of interest I received by the notional amount I earned from my wife's account. Doing that obviously reduces the overall tax owed but also removes the POA in its entirety.
So it looks like the soution is to request that the POA be reduced to zero and explain that I won't be getting any interest from that account for the 25/26 tax year.
I was contemplating this overnight and this morning, to test my working theory, I have temporarily reduced the total amount of interest I received by the notional amount I earned from my wife's account. Doing that obviously reduces the overall tax owed but also removes the POA in its entirety.
So it looks like the soution is to request that the POA be reduced to zero and explain that I won't be getting any interest from that account for the 25/26 tax year.
9xxNick said:
they seemed pleased to be able to assist.
Good work. Don't forget that reducing a POA isn't specific to any particular source of income, for instance "that joint account". If you finish the year underpaid on tax HMRC will hit you with interest etc whatever the source of the additional income. Whenever I do do it I try to be careful to err on the side of caution.9xxNick said:
Following a call with HMRC this afternoon I have been able to resolve the situation.
Thanks to everyone who contributed. Your thoughts were helpful in better understanding and ultimately sorting the whole thing out.
Did you try telling them that the money in the account is your wife's?Thanks to everyone who contributed. Your thoughts were helpful in better understanding and ultimately sorting the whole thing out.
Gassing Station | Finance | Top of Page | What's New | My Stuff