Starting in April 2027, HMRC (Her Majesty’s Revenue and Customs) will implement a significant change in the taxation of savings income. This reform is designed to enhance the efficiency of tax collection and address issues such as errors and fraud. As part of the changes, savings providers will be required to collect National Insurance (NI) numbers from both new and existing customers, enabling HMRC to match taxpayer records with third-party data.
According to a report by BirminghamMail, this shift is expected to impact both individuals and businesses, requiring adjustments to current systems. The implementation of these rules aims to simplify the tax process but brings potential challenges for various groups.
How the New Rules Will Affect Savings Providers
The HMRC savings tax crackdown is designed to streamline the process of collecting tax on savings income. By requesting National Insurance numbers from customers, HMRC aims to reduce errors and prevent fraud by aligning data from third-party providers with taxpayer records. As an HMRC spokesperson explained, this approach will improve its
Ability to match third-party data to taxpayer records,
helping to
Prevent error and fraud.
This change means that savings providers will play a key role in the new system, which has led to concerns about the administrative burden it will place on these institutions. Savings providers will need to update their systems to request National Insurance numbers and ensure they are associated with customer accounts.
While this may simplify the tax collection process, it raises the possibility of increased costs and delays as providers implement the necessary changes.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said:
On the face of it, this looks like it will become a costly and long-winded change across providers to both request and update existing account details to include someone’s National Insurance number – She adds,
I wouldn’t be surprised if such changes to make an NI number mandatory, expected from April 2027, [will also] include current accounts, because many use these to earn interest too.
Impact on Individuals: The Need for National Insurance Numbers
While HMRC’s tax crackdown may seem like a step toward efficiency, it comes with potential complications for individuals. One major concern is that not all people have National Insurance numbers.
Some individuals, such as older people who have never worked or claimed benefits, may lack an NI number. Similarly, foreign nationals who have moved to the UK but do not have the right to work could face challenges in opening bank accounts or receiving interest on their savings.
Stefanie Tremain, partner at Blick Rothenberg, called the new rules “intrusive” and noted that they could cause problems for those without an NI number:
We do see older people who have never worked nor claimed benefits, who do not have [these numbers]. Similarly, foreign nationals who move to the UK but do not work or have the right to work, will not have them – She added
It seems that the pain will be felt by the taxpayer and in this case, the banks.
For many people, this rule could feel intrusive, as it may require them to navigate bureaucratic systems to obtain an NI number. Tremain also warned that the additional administrative burden may reduce the attractiveness of the UK as an investment center for foreign nationals:
The additional administration burden may also reduce the attractiveness of the UK as an investment centre for those coming here, particularly if people are unable to open a bank account without a National Insurance number.
A Double-Edged Sword: Efficiency vs. Privacy Concerns
The tax crackdown’s primary aim is to make it easier for HMRC to collect taxes on savings income. By requesting National Insurance numbers, HMRC hopes to reduce the chances of errors in tax returns, which often result in people either paying too much or too little tax. In turn, this will make it easier for individuals to ensure they pay the correct amount of tax.
As an HMRC spokesperson explained,
These reforms will make it easier for customers to get their tax right first time.
However, there are concerns that the increased data sharing could compromise privacy. Tremain argues that the new system could be “intrusive,” especially for those without an NI number. While HMRC asserts that these changes will help prevent fraud, they may inadvertently create new challenges for vulnerable groups, adding unnecessary complications to the system.
Ms. Tremain also warned:
Where interest income has been automatically populated into a tax return, the taxpayer should take care to make sure the information is correct.
She emphasised that the current system already faces issues, as the correct amount of tax will only be collected if HMRC has the correct income figures, as well as the right Gift Aid donations and personal pension contributions.
