Tax Credits and PPI Payouts

lisa08_2

Hi everyone

Was recently successful in claiming a PPI Refund and having spoken to Tax Credits today, they have advised that the interest element of this refund, which amounted to £4,300 will be classed as income and added to my income for the year. I am aware that I will have to pay tax on this payment too and have been told that I will have to complete a self assessment in April to do this. Have wrote to HMRC Tax regarding this.

The money was put towards paying off a loan so now I am left with a tax bill and Tax Credits thinking my income is a lot higher than it actually is for this year.

Has anyone else been in this situation. Is my tax credit award likely to be reduced substantially. I didn't realise any of this when I actually put a claim in for PPI Refund so beware.

Any comments appreciated. Many Thanks

princessdon

Must have been some refund to get that amount of interest. Also no you don't pay tax either, tax on savings if none isa is already deducted unless you are a 40% earner?

Can you give more details.

Wail

If you are low income then yes, this could have a significant impact on your tax credits.

lisa08_2

The total of the refund from HSBC was £10,548, in the breakdown they listed what was a refund of the premiums paid and then the interest with 8% which totals £4,300. That is the figure I gave tax credits and they said the refund isn't classed as income but the interest figure is. I sent a copy of this to HMRC PAYE and they said that it is taxable at 20% and because of the amount that is due will have to be done as a self assessment. I only work part time, hence why I claim tax credits as I have two children. To be honest HMRC dont see to know what they are doing and first of all said it isn't classed as income but then came back on the phone to say I had to declare it as income the interest side. All very confusing, they are changing my award now too, don't know what to do next.
Thanks

princessdon

lisa08 wrote: »

The total of the refund from HSBC was £10,548, in the breakdown they listed what was a refund of the premiums paid and then the interest with 8% which totals £4,300. That is the figure I gave tax credits and they said the refund isn't classed as income but the interest figure is. I sent a copy of this to HMRC PAYE and they said that it is taxable at 20% and because of the amount that is due will have to be done as a self assessment. I only work part time, hence why I claim tax credits as I have two children. To be honest HMRC dont see to know what they are doing and first of all said it isn't classed as income but then came back on the phone to say I had to declare it as income the interest side. All very confusing, they are changing my award now too, don't know what to do next.
Thanks

No it's interest on savings not the ppi beakdown (all this that is for is your own records). Tax credits are concerned with earnt interest - eg when it's been in your bank and gains interest. Not refunds of paid interest.

Don't bamboozle them with the break down, it's ppi not interest.

That's my understanding but others will know more - it's not earnt so Hmrc can't tax either.

lisa08_2

Thanks for you reply, that is how I understood it, at the end of the day it is a refund for monies that I paid many years ago and then the interest obviously, I am new to all this so its all very confusing. I will ring them tomorrow and once again see if I can get through to somebody who knows what they are doing as they have changed my award now that I have earned "other income". Thanks

princessdon

Post on the ppi debt boards if no one helps more conclusively on here as they would see a lot if this. As I say my understanding is neither have a claim, but my knowledge is more limited than others

Good luck

[Deleted User]

princessdon wrote: »

Post on the ppi debt boards .. my understanding is neither have a claim, but my knowledge is more limited than others

Answered here:
https://forums.moneysavingexpert.com/discussion/4403273