Simplifying the taxation of offshore interest – LITRG response

HMRC recently launched a consultation exploring whether non-UK (offshore) interest should be assessed for tax on a calendar year basis rather than the existing UK tax year basis. The current tax-year basis of assessment can cause problems for both HMRC and taxpayers. HMRC usually receive details of offshore investment income on a calendar year basis under international automatic exchange of information agreements. Individuals will often also receive overseas interest details on a calendar year basis, as this is the most common fiscal year end outside of the UK.

LITRG put forward a brief letter in response to the consultation, agreeing that using the calendar year for reporting offshore interest could help HMRC match taxpayer data and might make things easier for some taxpayers. However, we’re worried it could make things more complicated for people who receive interest from countries that don’t follow a calendar-year tax system.

While HMRC’s ability to pre-populate tax returns or PAYE tax codes with offshore interest could be useful, taxpayers would still need to double-check the information to fully meet their tax obligations. This means the complexity for those with non-calendar-year offshore interest would remain or be made worse.

LITRG also pointed out that assessing UK interest and offshore interest on different assessment periods would mean added complexity when applying the personal savings allowance and this could add further confusion for taxpayers.