PPI Refund and crossing the tax threshold

GhostHorizon

Hello folks, new user here,
A friend who was in receipt of a PPI rebate in 15-16 has recently heard from HMRC that they are being asked for an additional sum in tax (in addition to the sum that was deducted from the rebate at the time). It is claimed that the additional sum is due because the rebate has taken my friend into the 40% tax bracket, and hence rendered tax due on the surplus. I am looking for some advice relative to this, for the following reasons:
1) Had the PPI Payments not been made (or smaller payments for a legitimate policy) the money would have remained in the bank and earned whatever interest, and had tax deducted from it in that tax year (say 2008-2015).
2/ The interest earned would not have been of the requisite amount to cross the threshold between basic and higher rate tax.
3/ Therefore, should it not be the case that the restitution of PPI payments should factor in that under normal circumstances there would have been no adjustment to the tax bracket on the basis of interest earned, and hence not affect the bracket even though a lump sum was paid in one tax year?

Basically had the interest been paid year on year on the money used to pay the PPI the taxt bracket would have remained unchanged. The chap on the phone said that they treat it like interest on payment of a bond (five year, say) and hence it does affect the bracket, but I suggested that this is not a fair analogy. The only recourse seems to be the appeals process but I would like some thoughts before going down this path.
Many thanks,

societys_child

You'll have to argue your case with the tax man. Good luck.

Dazed_and_confused

I cannot see this being good use of your time.

If the interest was paid in that tax year then it is taxed in that year.

What has your friend received which you think can be appealed against?

dunstonh

1) Had the PPI Payments not been made (or smaller payments for a legitimate policy) the money would have remained in the bank and earned whatever interest, and had tax deducted from it in that tax year (say 2008-2015).

UK law has tax charged at the point it is made available (which is not the same as when it is paid - although it could be in some cases). The period it accrues over is irrelevant.

2/ The interest earned would not have been of the requisite amount to cross the threshold between basic and higher rate tax.

See above answer.

3/ Therefore, should it not be the case that the restitution of PPI payments should factor in that under normal circumstances there would have been no adjustment to the tax bracket on the basis of interest earned, and hence not affect the bracket even though a lump sum was paid in one tax year?

See above answer.

The only recourse seems to be the appeals process but I would like some thoughts before going down this path.

Complete waste of time. Not a chance in hell that the law will be changed for your friend. What legal advice has your friend had that makes him feel that challenging the law would be successful? I assume he means legal action as HMRC are certainly doing nothing wrong here and there is nothing to appeal.

k3lvc

How much is the sum involved ? Is it really worth the fight/stress ?