A saver asked HMRC how the tax would apply to their funds
HMRC has provided guidance on when it will reach out to people who owe tax. The update came after a query from a taxpayer about tax on ISAs. A customer sought advice on what steps they should take after overpaying into their ISA accounts.
ISAs are tax-free accounts where any growth from investments or interest earnings are not subject to tax, as long as your deposits remain within the annual allowance. The current yearly limit for how much you can pay into ISAs is £20,000.
This allowance can be split between cash ISAs and stocks and shares ISAs. The worried saver informed HMRC: “It’s inadvertent and some of the money has been invested into shares so therefore I am not sure what to do at this point. I have contacted the ISA providers.”
In response, HMRC indicated that they may send a letter to the person regarding the issue. The department advised: “You contact the ISA providers in the first instance, if they can’t fix it, then you wait for us to write to you after the end of the tax year.” The saver replied to this saying that their provider had instructed them to withdraw the excess funds and then get in touch with HMRC.
They asked: “If the funds have gone towards buying shares, what is the typical solution that you are requiring when dealing whit this? Just so I know if I should hold off on any investments before April.”
The tax authority responded: “That you pay tax on any interest or gain derived from that excess. This may mean you having to file a self assessment tax return for the tax year, though we’ll try to avoid that.”
Asking for further guidance, the taxpayer then asked when exactly their investment growth would be taxable. They said: “I’m just unsure about how the proportion of the gain attributed to the amount I’ve oversubscribed will be determined.
“I assume you will let me know but please could you confirm if there’s anything I can do now to make it easier?” HMRC replied that this is “for the ISA company to calculate”.
They also told the saver: “We’ll only take action after the end of the tax year, once we have the audit data in from the ISA companies.” HMRC also shared a link to guidance on the Government website about repairing an ISA in cases, including where someone has paid in too much above their allowances.
What happens if I have overpaid into an ISA, above my ISA allowance?
The guidance includes this guidance for ISA providers who find that a saver has overpaid into their ISA for the current tax year: “You can advise the investor the excess and any related gains will be removed to correct the error.
“The investor should provide you with instructions on which subscriptions should be removed. The valid current year investments in a repaired ISA account may keep their tax exemption.”
However, if a person has overpaid in a previous year, the guidance is: “You should tell the investor that HMRC will contact them in due course. You should not give any advice to customers, as you may not have all the relevant facts or be certain of the action that HMRC will take.
“The valid previous year investments in a repaired ISA account may keep their tax exemption.” If HMRC learns that a person has oversubscribed without notifying the tax authority, they will inform both the provider and the saver of the mistake, and instruct them on the next steps.
In cases where a person has over-contributed to a Lifetime ISA, the provider “must contact HMRC”. If an account holder wishes to discuss an error with HMRC, they can get in touch using the income tax general enquiries helpline.
The helpline number is 0300 200 3300 and it operates from Monday to Friday between 8am and 8pm, and on Saturdays from 8am to 4pm.
