Parents used 3rd party for PPI claim, they're now claiming the tax man needs his cut?

jeanraffio

Hi. My folks (unknown to me btw) have used a third party to go through with a PPI claim. They signed the authorisation form for the amount that the company said that they had got from the bank (PPI was for a loan).

The company have now paid the money into my parents bank account, but it's now £350 less than the amount that was agreed as above. When my folks range to see where the rest was the fella at the end of the phone said that 'from October 1st, the taxman now takes a cut' (!). I've asked my folks to ring back today to get the explanation in writing - as they haven't supplied anything to say there has been a reduction.

My folks haven't paid the invoice yet on my advice.

Is this normal? What would they be on about. The 'tax' represents about 7% of the total PPI claim.

Any ideas? Thanks.

Voyager2002

The only tax involved should be on the interest the bank pays on the money that it returns after wrongly holding it for a considerable period of time. So you have done the right thing by asking for a written statement to explain the deduction.

You mention an invoice that they have not yet paid: what is that? Do you mean that the PPI firm has passed on the refund in full, without deducting their fee, yet have deducted money for tax? Unlikely, and the amount they paid should most certainly correspond with the figures shown on their invoice.

dunstonh

When my folks range to see where the rest was the fella at the end of the phone said that 'from October 1st, the taxman now takes a cut' (!).

HMRC have always required a tax deduction on the interest element of the refund. No tax is applied to the capital element. The tax is 20% at source (but higher rate taxpayers have to declare it to pay an additional 20% on top).

jeanraffio

Voyager2002 wrote: »

The only tax involved should be on the interest the bank pays on the money that it returns after wrongly holding it for a considerable period of time. So you have done the right thing by asking for a written statement to explain the deduction.

You mention an invoice that they have not yet paid: what is that? Do you mean that the PPI firm has passed on the refund in full, without deducting their fee, yet have deducted money for tax? Unlikely, and the amount they paid should most certainly correspond with the figures shown on their invoice.

Yes, the claim was paid in full into my parents account and they now have an invoice for their services. I thought that the 3rd party (who is the Claims Advisory Group) weren't allowed to handle the money between bank > parents, hence why they have to invoice later? Either way that is what's happened.

As a breakdown, the full claim stated was for approx £3850, with CAG's fee being 38% (I know!) - as said, they have been paid into the account approx £3500, so have lost £350 before they even have to pay their £1.4k to CAG.

Any thoughts?

jeanraffio

dunstonh wrote: »

HMRC have always required a tax deduction on the interest element of the refund. No tax is applied to the capital element. The tax is 20% at source (but higher rate taxpayers have to declare it to pay an additional 20% on top).

They're not higher rate taxpayers if that helps.

dunstonh

The claims company will invoice against the full amount of the redress. Your parents will receive the redress with tax at 20% deducted from the interest element of the redress payment.

Voyager2002

jeanraffio wrote: »

Yes, the claim was paid in full into my parents account and they now have an invoice for their services. I thought that the 3rd party (who is the Claims Advisory Group) weren't allowed to handle the money between bank > parents, hence why they have to invoice later? Either way that is what's happened.

As a breakdown, the full claim stated was for approx £3850, with CAG's fee being 38% (I know!) - as said, they have been paid into the account approx £3500, so have lost £350 before they even have to pay their £1.4k to CAG.

Any thoughts?

The amount returned will have been made of i. repayment of money that was wrongly paid to the bank; ii interest that the bank has had to pay on the money that it held. You could ask the bank directly to explain the amount, and break it down into a figure for capital repayment and a figure for interest.

jeanraffio

Thanks guys, letter requested so we'll see what the outcome is, though it would seem that it's probably due to the above.

-taff

They have to pay tax on the interest as well as the cag bill. The CAG are not going to accept a smaller bill because a portion of the total [interest] is taxable.

meer53

Any interest is taxed at 20%. This is what will have been deducted.People used to be able to declare this themselves to HMRC but since 1st October, the companies paying out the PPI have to deduct it and send it to HMRC.

Voyager2002

-taff wrote: »

They have to pay tax on the interest as well as the cag bill. The CAG are not going to accept a smaller bill because a portion of the total [interest] is taxable.

Indeed. However, they are entitled to a proper statement showing the amounts of capital and interest and the tax calculation, and would be justified in postponing payment of the invoice until they receive one.