Taxman dials into interest on telephone deposits

DENIS GRAY, a retired calligrapher from West Byfleet, Surrey, moved into a new flat a year ago and was asked for a pounds 100 long-term deposit by BT before he could get a telephone installed, writes Vivien Goldsmith.

BT introduced the policy of running credit checks on potential new customers about a year ago. As a result about 40 per cent are asked for a long-term deposit of pounds 75 to pounds 150 for a year.

To soften the blow, BT pays interest. This is currently set at 9 per cent. But when Mr Gray received his deposit plus interest back recently, he was aggrieved to discover that although he is a non-taxpayer, pounds 2.37 had been deducted to cover basic rate tax.

BT says that as a result of the complaint it will look at the possibility of allowing non-taxpayers to receive their interest gross.

But the Inland Revenue will not be receptive. It says that allowing banks and building societies to pay non-taxpayers gross is a privilege and not a right. A spokesman said BT could apply to pay gross interest, but would have to undertake to police the system.

Other utilities also pay interest on enforced deposits. London Electricity, for instance, has been paying 10 per cent since April (down from 12.5 per cent) on deposits that average pounds 150 and are kept until a smooth bill payments pattern is established.

Tax is deducted only if the interest earned is more than pounds 10. The Revenue said that strictly speaking, all payments should have 25 per cent tax deducted. But it was not enthusiastic about pursuing minute sums.

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