Do we need to file UK self-assessment?

Hubby and I are US citizens resident in the UK. We both work full time and currently pay our taxes in the UK through PAYE, and also file a US tax return for our worldwide income every year (as well as FBAR, of course).

We thought we had this all sorted out, but have just been made aware (quite by accident through a casual conversation) that we should be declaring the interest on our one remaining US bank account, to HMRC. This is the only taxable income we have outside the UK. Although I understand ignorance is no excuse, it *is* an explanation. Basically we got so bamboozled with trying to make sure our US taxes were correct that we just didn't realize we needed report this one account in the US to HMRC.

Last year we received $57 interest in total on this account, we of course paid taxes on this in the US.

Having read through the Gov website I am totally befuddled what we are supposed to do; do we have to file self-assessment for $57? Do we backfile for the years since we came to live in the UK? Do we file for $28.50 each (as it’s a joint account in the US but you can’t file joint tax returns in the UK?) Our UK-based US tax preparer has said she cannot advise us what to do as this is outside of her speciality.

I’m so reluctant to go and pay another tax preparer for their ‘advice’ given that we paid hundreds to our first tax advisor here, who told us we didn’t need to file self-assessment in the UK. Different advisors tell us different things and we don’t know who is right......Looking back, I think the first advisor got totally caught up in figuring out that we didn’t need to declare DH’s pension in the UK as it’s a government pension, and once she’d figured that out she never even mentioned the checking account that the pension is paid into. Interestingly, at the same time we also talked to HMRC who confirmed that the pension didn’t need to be declared as it was paid in $ and a government pension- but they also never asked about the bank account into which it is paid, and just sent a letter confirming we didn’t need to file self-assessment.

We’re very confused and stressed. We have no objection to paying whatever tax is due, but it feels as though we’re starting all over again with filing hugely complicated self-assessment forms for multiple years, and probably being fined for not filing earlier...for $57. I just want to cry. We’re not rich people, hubby works for minimum wage and we already pay upwards of $1000 a year for our US tax returns to be prepared. I haven't slept for two nights, worrying that HMRC is going to impose massive penalties that we just can't pay. Any ideas or direction on how to make this right without going bankrupt would be very much appreciated!

I would not stress too much about it. As you say, it is a joint account so each person is only getting about $28 so if you were both being taxed in the Uk and in the 20% bracket it would only be about $6 each in tax that HMRC are missing out on. To process a self assessment will cost HMRC more than that.

I would call HMRC and explain the situation and see what they advise.

Thank you for your response and for being kind....! I know this must seem like a ridiculous thing to be so worried about but I do struggle with anxiety and something like this just really bothers me.

I just spent forever on the phone with the US bank figuring out the exact amount of interest received for the 2016/17 UK tax year (as of course the 1099INT is for the US tax year). Long story short, the total interest we received on this account for the last UK tax year was actually...are you sitting down?.... $0.97 

(The 1099INT was combined, though it doesn't say anywhere on it that this was the case, and included the annual income for my daughter's CD which has since expired and was closed almost 18 months ago - the funds were moved to her UK savings account and so are now safely within HMRC's sight).

I think you're right and a phone call to HMRC is in order, so we can explain and make them aware of the one remaining account. At least this way if our bank shares information with HMRC (which I believe many banks worldwide are now required to do?) then they won't get all excited about an account that has no money in it (as Hubby's pension is paid monthly and then every other month we transfer the money to our UK account).

Please take a deep breath. Think about it, nothing is going to happen about 97p is it?
I understand the anxieties the whole tax thing causes and the expense you have gone to to try to get it right and the utter frustration of having contradictory information from "experts". I would do nothing, not even call HMRC.

You are absolutely right about me getting things in perspective, I know you are. I'm working hard at it!

My constant fear of the tax man is triggered by an experience about 7 years ago when we lived in the US and I was handed a $70k penalty for not filing disclosure for my UK pension (we had been advised by a local tax advisor that my particular type of pension was exempt from reporting). Thankfully a different tax advisor was able to mediate and the IRS finally accepted this was a genuine error, I backfiled everything, and the penalty was withdrawn. But as you can imagine, I never want to go through anything like that again.

This time around it was a form letter from our investment manager (who, rather ironically, doesn't manage any investments for us but did sell us our life and critical illness cover!) which included an insert from HMRC stating that if we hadn't declared all our UK tax liabilities then (and I quote) "HMRC will come for you". Cue me panicking....

In the eyes of tax authorities you are presumed guilty and have to prove innocence so I fully understand such concerns.

I have to file self assessment and keep a detailed spreadsheet recording each interest payment month by month no matter how small, and also keeping every monthly statement as I realize 1099s do not cover the same tax period HMRC requires.

If it is indeed less than $1 you have earned in income from your US account then I would not even bother calling HMRC but keep detailed records going forward and next year call them if the sums get into double figures.

In the past, SA100 came with instructions which noted if you have a source of income, that amount can be rounded down to the nearest £ on the SA100. (And, if you had tax withheld, that could be rounded up to the nearest £.)

$0.97 cents in income (at the applicable exchange rate) will be rounded down to £0.

HMRC can be dogmatic, and are trying to be more bold in the collection of tax, but they are still a long, long way short of the nastiness of the IRS. If there is ever a question, about anything, never worry about calling HMRC and talking it over.

But, in this case there is nothing to declare, although you may question whether in the future you should be filing SA100 if the amount increases. I believe, if the foreign income is less than £2,000 and is from interest only, SA100 will do and SA106 is not required. The foreign interest income can be noted along with the abbreviation of the source country on one of the lines within SA100.

Thank you all for the help and the calming words!

It seems I don't actually have to worry about anything right now after all, though I definitely do need to be aware and keep an eye on income going forward. Very relieved that I don't need to panic about losing my house because I made a silly mistake! I just made myself a pretty little spreadsheet a la durhamlad (totally stealing a great idea) so I can keep on top of things. At least, having some notice, I'll be able to make enquiries ahead of filing deadlines as to what I need to do, and that's reassuring in itself.

I've always thought of myself as being pretty organised, I have paperwork diligently filed on one side for US taxes every year, but I clearly need to be better organised about UK taxes!

HMRC will/are receiving FATCA data from the United States. My preference today is to register for and file annual self-assessment returns as this may allow one to avoid HMRC enquiries. This will also allow you to elect that some of your income is treaty exempt from UK tax.  The UK has no other method of allowing one to elect into a tax treaty.

For 2016/17 the UK has a Personal Savings Allowance which exempts some amounts of interest income. The exemption applies to both UK and non UK sources of interest. The exemption amounts to £1,000, £500 or nil, depending on whether the recipient pays tax at 20%, 40% or 45%.

For earlier years, send a short letter to HMRC with the amounts (in sterling) for the past for years, with a request to amend the Notice of Coding to tax the past amounts.