RBS plan to deduct £500 INCOME TAX on my PPI refund they just processed???

Stella_Podkin

I claimed PPI and all associated interest back on a Lombard Direct loan, now sold on to another finance company, but Lombard became/was part of Royal Bank of Scotland, who have offered me a lump sum for PPI and interest totalling a shade south of £7000 which is FANTASTIC - no form to fill in, just the manager of our local branch did it all over the phone, and in just a few weeks, a settlement letter has arrived. I took out the loan in 2003, so - I've been paying it off with a DMP with Stepchange since then - thirteen years!!! - so it earned a lot of interest ...
BUT
it says they are going to deduct over £500 in INCOME TAX?? I did not know that the RBS were in the business of collecting tax?!! In any case - I earned the money to pay the charges in the first place, and I paid tax on it. This is not money I've newly earned coming back to me - this is a REFUND on money I have already paid out - so - should I ring them up and tell them "no need to deduct, thanks all the same for offering!"??
I am also slightly scared that they'll threaten to cancel the whole refund if I make waves.
Sending back the form to accept 'full and final' means I can't later argue the toss so - it's now or never.
Also - they haven't mentioned the 4 x letters sent to me monthly when I first began to default on the loan - for which they charged me £25 apiece and then continued to ADD that £100 to the loan total, AND therefore to accrue interest on that £100, which I have paid for the next 13 years on top of everything else they charged me for - - - so - I wonder what the interest would be at statutory rate on £100 over 13 years?? Wouldn't that money tot up to something significant also? And even if it didn't - it's MY MONEY which they've charged me for, and for which I've been paying all this time??
Advice on these two issues would be so welcome - I'm not making much headway trying to find out -
THANKS to whoever could give me some advice on this ~~ Stella P

Kim_13

They are obliged to tax the interest (until April) but shouldn't be taxing the refund itself. Banks have been deducting tax from interest and passing it to the government for years.

It's worth querying as there'd have to be almost £3,000 in interest for them to deduct over £500 in tax (assuming you're a basic rate payer.) I highly doubt that £3,000 of £7,000 is interest.

dunstonh

it says they are going to deduct over £500 in INCOME TAX?? I did not know that the RBS were in the business of collecting tax?!!

Are you sure you didnt know? After all, they tax interest payments on current accounts and savings accounts.

UK law requires interest to be paid with tax deducted unless it is within a tax wrapper.

In any case - I earned the money to pay the charges in the first place, and I paid tax on it.

And there is no tax charged on your refund.

This is not money I've newly earned coming back to me - this is a REFUND on money I have already paid out - so - should I ring them up and tell them "no need to deduct, thanks all the same for offering!"??

The refund is not being taxed. The interest on the refund is being taxed as it is interest.

I am also slightly scared that they'll threaten to cancel the whole refund if I make waves.

There is nothing to make "waves" about. This is how interest works in the UK.

[Deleted User]

Kim_13 wrote: »

I highly doubt that £3,000 of £7,000 is interest.

It really depends how long the interest has been accruing. As it's a long time (over a decade) I wouldn't be at all surprised.

Regardless, as long as the tax deducted is from the interest only, then the OP has no complaint and can't take this any further.

If the OP is a non-taxpayer, then any monies deducted can by reclaimed via HMRC.

Stella_Podkin

thank you so much - I feel a bit of an idiot - I guess I must have known but I was just surprised. The letter from them says:
Total refund of PPI premiums and associated interest paid to date £4761.96
Statutory interest £2513.42 (Gross interest at 8% added to each PPI premium payment, from the date of each payment)
Less income tax on statutory interest (20%) £502.68
Net Offer: £6772.70.
No mention made of the letters and £100 costs all then added on to the loan amount and charged interest though. Perhaps I ought to just grab the offer - - and be hugely grateful which I am!! ...

[Deleted User]

Stella_Podkin wrote: »

No mention made of the letters and £100 costs

That's irrelevant to your mis-selling complaint. The PPI didn't cause your default, you did.

Kim_13

Stella_Podkin wrote: »

thank you so much - I feel a bit of an idiot - I guess I must have known but I was just surprised. The letter from them says:
Total refund of PPI premiums and associated interest paid to date £4761.96
Statutory interest £2513.42 (Gross interest at 8% added to each PPI premium payment, from the date of each payment)
Less income tax on statutory interest (20%) £502.68
Net Offer: £6772.70.
No mention made of the letters and £100 costs all then added on to the loan amount and charged interest though. Perhaps I ought to just grab the offer - - and be hugely grateful which I am!! ...

With those figures this is the correct deduction for basic rate tax. I doubt at this stage if you could delay the payout until the start of the tax year (when your PSA would cover the £502.68 and you'd have no deduction (assuming you don't have more than another £497.32 in interest for the 16-17 tax year from somewhere else.))