PPI Refund and Tax Credits

lisa08_2

Can anyone advise on the below, i did post in the Benefits Forum too - any advice greatly appreciaed.

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.

Total of claim was just over £10,500.

Thanks

[Deleted User]

lisa08 wrote: »

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.

It doesn't matter how you've "spent" this money, you still owe tax on the interest amount. Do you think paying off a loan would somehow exempt you from tax?

It would be the same if you used an overtime or bonus payment to pay off a loan-you'd still be liable for income tax. Of course in this circumstance PAYE would take the tax before you received it, but it would still be classed as income which might reduce your tax credits.

On a more positive note, you should be able to amend you tax code so that you don't have to pay this sum in one go. Contact HMRC for details.

lisa08_2

Thanks for reply. No I didn't think I would be exempt from paying tax because I paid off a loan, that's why I wrote to them enclosing a copy of the letter asking them how I go about paying it. It was the fact that the interest amount is also classed as Income regarding my tax credit claim that confused me, I thought as it was a refund of premiums I had paid (many years ago), didnt understand why they were classing it as income. They have changed my award now anyway, just wondered what other peoples views were on it and how anybody else had declared it to them, having contacted both the HMRC PAYE and Tax Credits section, I was openly giving them the info. Thanks anyway.

[Deleted User]

lisa08 wrote: »

I thought as it was a refund of premiums I had paid (many years ago), didnt understand why they were classing it as income.

The refund of premiums paid is NOT taxable.

It's the interest element which is, just as it would be if the redress money had been invested for all that time in a (very) high interest bank account.

skemp1

I would give my children away for a 8% savings account.