Income Tax on Fixed Rate Bonds

I am aware that income tax on Fixed Rate Bonds is due in the year of maturity where the Bond holder has no access to the interest. I am not clear that Financial Institutions make this clear to HMRC when reporting interest payments each year. For example I have a two year bond maturing in June 2024 where I have no access to the interest which is added to the bond on 5/4/22, 5/4/23 and on maturity. Tax is not therefore due until 2024-25 on the whole of the interest. However the Financial Institution tells me that there are obliged to advise HMRC of the interest paid, and HMRC are trying to charge me tax in 2021-22 despite me advising them of the nature of the Bond. It is clearly wrong to seek payment of tax on income prior to the bond holder having access to the interest, as noted on HMRC website ref: SAIM2240. My question is what obligation do Financial Institutions have to tell HMRC if the interest relates to a Bond that is not taxable in the year when interest is applied, or are HMRC reliant on the taxpayer to tell them?

Hi,
The guidance at SAIM2440  is based on the legislation at https:
Income Tax (Trading and Other Income) Act 2005, Section 370 and advises that "Interest ‘arises’ when it is received or made available to the recipient. Interest has been made available if it is credited to an account on which the account holder is free to draw".
If you are able to withdraw funds from the account at any time during the term, then the interest is taxable in each year that it arises.  
If you have no access to the funds in the fixed rate bond until the bond matures, then you are taxable on the interest only in the tax year the bond matures.
Thank you.

Thank you HMRC Admin 8. Unfortunately you have not answered my question which effectively is whether the responsibility for advising HMRC as to whether the bond holder has no access to the funds lies with the Financial Institution or the bold holder. In my case the Financial Institution has advised HMRC of Interest added 5/4/22 and 5/4/23 although the Bond does not mature until June 2024. How do I stop HMRC from taxing me on the earlier interest to which I do not have access?

Hi,

The financial institution will have to follow the guidelines laid out in legislation. They will be required to report this information to HMRC. HMRC will accept the information they have provided.  

If you are in dispute on the information they have provided, you will need to take this up with the finacial institution and if they have made an error, amend the information provided to us.

Thank you.

The more I look into this the more I find the process in fundamentally flawed making it very difficult for HMRC to correctly apply interest on Fixed Term Bonds. One Financial Institution has advised me they are precluded by regulations from advising HMRC whether or not interest applied to a bond is not available to the bond holder in that tax year. This is backed up by the guidance on https://www.gov.uk/guidance/how-to-complete-a-bank-and-building-society-interest-return#format-and-structure-sub-returns-batches-labelling which makes NO provision for such information. As such it is therefore impossible for Financial Institutions to give the information to HMRC. What is the point in HMRC then asking me to go back to the Financial Institution? SAIM2440 may well be the rule but HMRC does not have the ability to apply it correctly under current guidance, and has no alternative but to listen to the taxpayer. Your answer implies that the Financial Institution has done something incorrectly, but they have not - it is HMRC where the problem lies.