New powers allow HMRC to use third party data from banks and financial institutions to automatically calculate any tax due on bank or building society savings interest.

This is then used to match savings interest data direct from banks and building societies with PAYE records. HMRC can then adjust PAYE codes and recoup underpayments of tax on savings interest directly from individual taxpayers’ tax codes.

At the moment, HMRC has been communicating with some taxpayers advising them of the issue, either by sending out a tax code notification (P2or a breakdown of their tax calculation (P800).

In some instances, taxpayers were also sent an advance letter explaining that HMRC was using their bank and building society interest data to calculate their tax liability and to adjust their tax code.

In the latest research into taxpayer reaction to this data sharing and the effectiveness of the associated communications approach, which has been trialled before full rollout, HMRC commissioned a qualitative research project to gauge reaction to the new approach.

HMRC claims that taxpayers were on the whole agreed that the ‘system was not a concern’, although there were criticisms of the lack of transparency, poor quality communications from HMRC about how the new system works and a general .

The research exercise found ‘near consensus among customers that HMRC’s use of third-party bank or building society savings interest data is not problematic’.

Many felt that, if HMRC is going to reclaim bank or building society savings interest tax, doing it this way alleviates the burden and simplifies the process of paying tax on savings interest.

In some cases, taxpayers assumed that HMRC historically used bank or building society savings interest third party data to calculate how much tax was owed.

The 60-page research report stated: ‘Even among the few whose approach to their tax affairs was characterised by an angry or confused tone, there was predominantly relief that HMRC’s use of the bank or building society savings interest data to calculate tax owed meant there was no need for the customer to handle a “difficult” declaration.’

There were some cases where taxpayers who, while unopposed in principle to the data being collected and used in this way, flagged concerns about data protection, with a few feeling HMRC has a moral obligation to be transparent around what data it has access to, how it is used and what security and protections are in place.

Some participants also commented more widely on HMRC’s use of third party data. Opinion and knowledge was mixed. However, several perceived the use of third party data to be the norm within PAYE and felt HMRC would already have access to any or all third party data that was required to calculate the tax owed.

Some also felt that this process would reduce tax fraud by other customers. A few spontaneously mentioned this trial process is no different to HMRC accessing third party data from their employer, or said that ultimately HMRC is a ‘higher power’ and has a ‘right’ to the data.

Some respondents said HMRC should be more transparent in communicating to taxpayers about the use of third party data and also had concerns about data safety.

IFF stated: ‘Given the varying comprehension of the existing communications on this topic, if HMRC attempts to meet this customer request, a key challenge will be how to avoid this additional information about data uses and safeguards obscuring the intended “main” messages.’

Taxpayers were concerned about HMRC behaviour in the event of underpayments and were unclear on how the amendment would be communicated.

The research noted that the most common ‘imperfect’ understanding was that a tax underpayment was being remedied through their tax code, but without realising that the underpayment was related to their bank or building society interest.

Some of the HMRC letters were so confusing that several taxpayers were under the impression that the underpayment was related to another area of tax, while others were not sure where the underpayment originated from.

Effective April 2016

The personal savings allowance was introduced on 6 April 2016.

Until that time, bank and building society interest was deducted at source, but now banks and building societies will pay gross with any tax due once the allowance is used up claimed via PAYE.

The research also found that very few people thought failure to notify bank and building society interest did not amount to doing something ‘wrong’.

The report concluded that ‘it will be interesting to see whether the same degree of acceptance is found if HMRC uses third party data to address non-compliance in areas of customers’ tax affairs around which there is greater consciousness of having been non-compliant’.

Research company IFF conducted face-to-face interviews with 25 individuals who had made underpayments or not declared tax above a certain level to assess their response to this approach.

The research from HMRC, Taypayer views on use of bank and building society savings interest (BBSI) to bring customer tax affairs up to date is here