HSBC claim success - tax declaration

egadsby

Hello all.

I have been offered a PPI refund from HSBC to the total of about 6.5K. Pretty chuffed, almost makes those years of stupidity seem worth it (not really).

Anyway, I haven't received the documents in the post yet, but they have confirmed the amount and then tried to give me a vague breakdown, which was quite complicated as it spans three loans.

My understanding is that these refunds are made up of three parts and one part is liable to tax:

"PPI payouts are usually formed from three elements.
The first two constitute the compensation. They are:

• A refund of the premiums paid
• Interest you have paid on the premium

The third part is additional interest on the compensation at 8% per annum (not compounded, so no interest on interest). It is this part that is taxed.
Tax is owed for the tax year you are paid compensation in."

I read that HSBC and various other banks do not tax at source meaning that I would have to declare it myself, but when I phoned HSBC they said there was nothing to declare and that I shouldn't worry about it.

I realise that a proper examination of the, soon to arrive, paperwork would probably point me in the right direction (or maybe not?) - does anyone know the current stance on tax adopted by HSBC? As I've been told by the bank nothing needs taxing, I'm tempted to leave it, but don't want to be hit with something nasty in the future.

Thanks!

[Deleted User]

egadsby wrote: »

I read that HSBC and various other banks do not tax at source meaning that I would have to declare it myself,

This is correct.
You can contact HMRC to arrange either a full payment of the tax due or, if you prefer, your tax code will be adjusted so that the amount is taken gradually.
As you say, the only element of your redress that is taxable is the 8% additional interest.

I have no idea why the Bank told you any differently, but your offer letter will very clearly state that the interest is indeed taxable.

-taff

http://www.hmrc.gov.uk/news/news100512.htm

egadsby

Moneyineptitude wrote: »

This is correct.
You can contact HMRC to arrange either a full payment of the tax due or, if you prefer, your tax code will be adjusted so that the amount is taken gradually.
As you say, the only element of your redress that is taxable is the 8% additional interest.

I have no idea why the Bank told you any differently, but your offer letter will very clearly state that the interest is indeed taxable.

Thanks, I thought as much.

Is there a way of calculating roughly how much is taxable if the total amount is £6.5K? Am I going to get fleeced?

[Deleted User]

egadsby wrote: »

Is there a way of calculating roughly how much is taxable if the total amount is £6.5K? Am I going to get fleeced?

The 8% interest will be itemised in your offer letter breakdown.

egadsby

Moneyineptitude wrote: »

This is correct.
You can contact HMRC to arrange either a full payment of the tax due or, if you prefer, your tax code will be adjusted so that the amount is taken gradually.
As you say, the only element of your redress that is taxable is the 8% additional interest.

I have no idea why the Bank told you any differently, but your offer letter will very clearly state that the interest is indeed taxable.

Indeed, the taxable interest is clearly set out in the letter.

The amount I'm being taxed is roughly £400, which ideally I'd just like to settle in one go, but when I phoned up HMRC with a general enquiry they said the amount wasn't enough to self assess. Does that sound right?

Also, what is the maximum time I can hold on to this money before I have to pay it? Couldn't I stick it in an ISA until the last minute?

Thanks.

-taff

You can do what you like with it till it's time to pay up

Theyll probably just change your tax code next year.

egadsby

-taff wrote: »

You can do what you like with it till it's time to pay up

Theyll probably just change your tax code next year.

Yep, but I haven't declared it yet. I know I could just put it away in an account somewhere, but how long have I got to pay it? If I can leave it for a while, I might get a bit of interest out of it.

-taff

Ask them what they're more likely to do and then you know what you can do with it