Tax on 8%

amersall

Hi guys, Newbie here well, you would think I was as I don't know the answer to the question regarding tax on the 8% for PPI that I have been asked:(

I helped a mate get a refund of PPI, all good, she is a tax payer and has, correctly, paid tax on the 8%.

She then asked
" why have I paid tax on this if it is classed as savings when the Government say you can have £1000 interest from savings without tax".

She does not pay tax on savings she has of £6,000 because the interest is not that much.

I have not got a clue about this, so, if anyone can explain this, if she has got it right, likewise, if she is wrong and why.

societys_child

Hi, newbie . . . :rotfl:

Tax man realised some time ago that many successful PPI "re-claimants" weren't paying the due tax on the 8% and were having to chase it up, so instructed the banks to deduct it before payout.

It can be reclaimed from HMRC by non-taxpayers, using form R40.

amersall

thanks for that.

I know how the 8% works, it was just the question I was asked that threw me.

I have told her that the 8% interest is not tax free because it is not from a personal savings account that you can have the £1000 tax free from.
Is that right?
Am having a blonde moment AGAIN

Dazed_and_confused

All interest that was previously taxable still is, it's just that some (up to £1000 for most) is now taxed at a special rate of 0%.

There is also the other 0% tax band for savings interest but that will almost certainly only apply if her wages/pension income is less than £16000/£16500 in the tax year the PPI was paid.

Assuming she doesn't need to do a self assessment return then easiest thing would be for your friend to complete a R40 form, which is like a simple tax return. She needs to include all taxable income such as wages, untaxed interest (ignoring genuine non taxable interest from ISA's) and the taxed interest she has received.

If you look at the tax return notes SA150 on gov.uk that seems to make it clear bank interest and PPI interest must be treated the same as they go in the same boxes on the return so I would say she can benefit from the new 0% tax band.

If the PPI interest was received in this tax year and she's earning/got a pension she'll probably need to wait until next April, when she's got her P60 and knows her untaxed interest amounts.

-taff

No, you are still allowed £1000 interest free.
She can contact the HMRC who will adjust her tax code at the end of the year.

Dazed_and_confused

HMRC do not adjust tax codes to give repayments of tax deducted from interest.

amersall

Thanks everyone for your help much appreciated.
I understand it now.

-taff

https://www.gov.uk/apply-tax-free-interest-on-savings/how-much-tax-you-pay