Policy paper

Revenue and Customs Brief 34 (2013): reporting of interest payments

Published 11 November 2013

Purpose of this brief

The purpose of this brief is remind financial institutions to check their procedures are correctly separating interest payments to addresses in the UK from those in the EU.

Who needs to read this?

Financial institutions that make returns to HM Revenue and Customs (HMRC) about payments of interest. These returns may be made under schedule 23 (formerly sections 17/18 TMA) or under the UK regulations implementing the EU Savings Directive (EUSD).

What action should be taken

Check that your procedures are correctly separating interest payments you make to those with addresses in the UK and fully reportable countries from those with addresses in the EU and other prescribed territories.

In general you should be reporting those with:

a) UK and fully reportable country addresses using the schedule 23 template and rules

b) addresses in EU member states and other prescribed territories using the EUSD template and rules

Issue

Following discussions with other EU member states, HMRC has made an initial check of the data we have supplied to other states under the EUSD. Preliminary analysis shows that in some cases financial institutions may be using inappropriate criteria to decide which format they report payments in. For example, by determining the ‘country of residence’ as the issuing country of the passport of the customer rather than the country in which their current permanent address is situated. This has lead to interest paid to a person with a UK address being reported to the fiscal authorities of other EU member states instead of to the UK.

Background

Financial institutions who pay interest to their clients must report those payments to HMRC in accordance with two sets of rules.

• payments of interest to clients who live in the UK or fully reportable countries (see list 1 below) are reported under rules made under schedule 23 to Finance Act 2011. These are currently called type 17 and type 18 returns because they used to be made under sections 17 and 18 of the Taxes Management Act 1970
• payments of interest to clients with addresses in the EU and other prescribed territories (see list 2 below) are reported under rules of the EUSD (2003/48/EC) (The Reporting of Savings Income Information Regulations (SI2003/3297))

Please note that the information required under these two reporting systems is different in some ways. However, we have produced a combined template that can be completed with information from either system and then supplied to us in an electronic format.

When we receive the combined reports our computer systems separate out those marked EUSD from those marked type 17 or type 18. The returns coded EUSD are grouped by territory and then transmitted electronically to that other territory. This means, for example, that we gather together and send to France all the reports we get from financial institutions that they have made payments of interest to people who live in France. This may include a few people who have an address that is not in France but which the EUSD rules say are to be treated as living in France, such as some staff of the French embassy.

Current Position

Our initial analysis shows that some financial institutions may not be coding their returns completely correctly.

There is the possibility that interest paid to a person with, say, a UK address should be reported to the fiscal authorities of another EU member state but we would expect the number of such instances to be very small.

Where a person has a UK address their information should normally be reported within the type 17 and 18 system. If such people are reported using the EUSD system, HMRC may miss out on the tax information we need and the other member state receive information that they do not need.

Future

We will continue our research and address particular concerns to individual financial institutions. However, all financial institutions should check that their procedures result in them making correct returns.

Possible penalties

Schedule 23 and the EUSD regulations make provision for penalties to be charged where a financial institution provides incorrect information deliberately or due to a lack of care. An institution that takes reasonable care but still produces an inaccurate return will not be liable to a penalty. An institution that takes no action after the reminder from this brief may find it difficult to avoid a penalty by showing that it took reasonable care when providing its return.

List 1: Fully Reportable countries 2013 to 2014

Interest paid to people in these territories is reported to HMRC along with that for people in the UK using the Type 17 or 18 formats:

Australia
Bermuda
Canada
Japan
New Zealand
Norway
South Korea
USA

List 2: Prescribed Territories 2013 to 2014

Interest paid to individuals in these territories is reported to HMRC using the EUSD format:

Austria
Belgium
Bulgaria
Croatia
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Republic of Cyprus
Romania
Slovakia
Slovenia
Spain
Sweden
Aruba
Bonaire
St Eustatius and Saba
British Virgin Islands
Curaçao
Gibraltar
Guernsey
Isle of Man
Jersey
Montserrat
Sint Maarten

Further information on this subject can be obtained from the internet by following the link below.

Type 17 and 18 reports of interest and EUSD

Or by phone from Nick Wright on Telephone: 0161 475 8577

Issued 11 November 2013