MSE News: Got a PPI payout? You probably owe tax

edited 30 November -1 at 1:00AM in Reclaim PPI & Other Insurance
48 replies 26K views
124

Replies

  • sunflower_uk6sunflower_uk6 Forumite
    4 Posts
    Part of the Furniture First Post Combo Breaker
    MoneySaving Newbie
    Wonder if someone can help as i am confused:-

    My partner got a PPI refund with 8% interest amounting to £2672.30. He is employed full time and pays tax and NI on his salary so how much will he have to pay back in tax?

    Thanks
    Claire
  • Alpine_StarAlpine_Star Forumite
    1.3K Posts
    Part of the Furniture 1,000 Posts Combo Breaker
    ✭✭✭
    Wonder if someone can help as i am confused:-

    My partner got a PPI refund with 8% interest amounting to £2672.30. He is employed full time and pays tax and NI on his salary so how much will he have to pay back in tax?

    Thanks
    Claire

    You're only liable for tax on the interest element of the refund http://www.hmrc.gov.uk/news/news100512.htm
  • edited 22 November 2012 at 9:50PM
    jjhertsjjherts Forumite
    3 Posts
    edited 22 November 2012 at 9:50PM
    Let's be logical and not like HM Government...
    People took out loans, they were mis-sold PPI...
    They paid tax on their earnings...
    They paid tax on their loan and PPI...
    The people now have to pay tax on the 8% interest of the refunded PPI...
    I am led to believe the tax is payable on the interest only.
    Therefore the Government assumes that the people would have invested this money in a saving scheme that was taxable...

    What if the people question this fact...
    Actually, what if they had invested in a TESSA or ISA a TAX FREE savings account?


    Therefore the Government HAS NO RIGHT to tax the 8%.

    The Government is being greedy and taxing based on an assumption!

    I hope the Government stop their very expensive quest for taxation in this area before someone actually says, 'I was mis-sold, I would have liked to have opened a tax free savings account, but couldn't afford to, I was paying tax on borrowing, PPI and income at the time. Refund and interest is legally mine.'

    Ponder these statements - The people would have obviously opened TESSAs and ISAs with the money saved.

    How about a 0.1% tax on EBAY sales in the UK instead? I'm not sure how this is supervised!
  • MattyAMattyA Forumite
    185 Posts
    jjherts wrote: »
    Let's be logical and not like HM Government...
    People took out loans, they were mis-sold PPI...
    They paid tax on their earnings...
    They paid tax on their loan and PPI...
    The people now have to pay tax on the 8% interest of the refunded PPI...
    I am led to believe the tax is payable on the interest only.
    Therefore the Government assumes that the people would have invested this money in a saving scheme that was taxable...

    What if the people question this fact...
    Actually, what if they had invested in a TESSA or ISA a TAX FREE savings account?


    Therefore the Government HAS NO RIGHT to tax the 8%.

    The Government is being greedy and taxing based on an assumption!

    I hope the Government stop their very expensive quest for taxation in this area before someone actually says, 'I was mis-sold, I would have liked to have opened a tax free savings account, but couldn't afford to, I was paying tax on borrowing, PPI and income at the time. Refund and interest is legally mine.'

    Ponder these statements - The people would have obviously opened TESSAs and ISAs with the money saved.

    How about a 0.1% tax on EBAY sales in the UK instead? I'm not sure how this is supervised!


    Very good point.

    Also,

    What if the figure paid is in dispute because you have calculated that the total figure offered is not in line with the FOS guidelines , and you are being duped by the banks yet agian?

    It has happened to me with an RBS settlement that has not been calculated properly BUT shows 8% at £2K , however their calculations are £6K short.......I dont think I should be paying any tax just yet.
    Once sorted and agreed, begrudgingly I will settle up with HMRC.

    Matty
  • Alpine_StarAlpine_Star Forumite
    1.3K Posts
    Part of the Furniture 1,000 Posts Combo Breaker
    ✭✭✭
    jjherts wrote: »

    What if the people question this fact...
    Actually, what if they had invested in a TESSA or ISA a TAX FREE savings account?

    If it was formulated on that basis you'd be worse off.

    A taxable statutory interest at 8% is more generous than any savings scheme around (tax free or otherwise) even if you were a higher rate tax payer.
  • If the ppi settlement was achieved using a financial claims company, is the tax owed on the 8% (interest) for the total amount received or is it calculated on 8% of the total amount received less the claims company fees?

    Also, this year I will be a 40% tax payer but was mostly a basic rate payer for all of the previous years (i.e. during the period the 8% interest was being accrued). Can the tax owed be calculated on a year by year basis as opposed to the year the compensation is paid in?
  • -taff-taff Forumite
    12.7K Posts
    Eighth Anniversary 10,000 Posts Name Dropper Photogenic
    ✭✭✭✭✭
    it is 8% on the total interest received.
    You don't need a claims company, Their cut comes out of your share.
  • Thanks for the reply -taff, that's what I thought. Unfortunately I have already used a financial claims company that charge 25% (inclusive of VAT). The details of my claims are set out below showing what I think I owe to the Inland revenue.

    All of the ppi claims were made against joint accounts (held by myself and my wife). My wife is a basic rate tax payer (i.e. she does not pay at the 40% rate), does anyone know how the tax will be distributed?

    Total premiums returned = + £6454
    Total interest returned = + £4002 (not sure how the 8% is calculated though this is the total figure quoted?)
    Total amount returned = + £10456

    Financial Claims Co. Fees = - £2614 (25% of total amount returned)
    Tax at 40% of interest returned = - £1600
    Leaving a Net total of = + £6242

    Wish I hadn't used a FCC as I ended up doing all the work anyway and they just reaped the rewards. Very disappointing that I have to pay tax in this year (i.e. when the payment was received) when the interest was accrued over the 18 previous years when I earned a lot less money. Hope this example will help others avoid the mistakes I made!
  • Hi im having a bit of trouble working this out !!! my breakdown isnt in 3 parts just 2 e.g - loan 1 - refund of premiums £788.67, interest at 8% £362.22 loan 2- refund of premiums £122.05, excess balance and interest £442.71 loan 3 refund of premiums £14.12, excess balance and interest £195.66 the offer of excess balance and interest is due to the loans 2 and 3 being refinanced from loan 1 with PPI which meant i paid more interst when making repayments on the next loan. How am i supposed to know how much 8% is for tax purposes and more to the point how is £362.22 8% of £788.67 ? I currently earn about £200 below the tax limit so that is £40 of extra tax covered but i am trying to work out how much more i will have to pay. Does anyone have any ideas please ???

    I have a similar issue, in that some of my PPI refund includes this "Excess Balance and Interest" figure. Do I need to pay tax on this figure as well?
  • -taff-taff Forumite
    12.7K Posts
    Eighth Anniversary 10,000 Posts Name Dropper Photogenic
    ✭✭✭✭✭
    you pay tax on any of the 8% interest.
This discussion has been closed.
Latest MSE News and Guides

Energy price cap could be extended beyond 2023

New plans have just been announced by the Government

MSE News

Cheap contents insurance for tenants

DON'T assume your landlord covers you

MSE Guides

Summer sizzlers round-up

Incl £2ish sun cream & £1.50 disposable BBQs

MSE Deals