PPI & Benefits

GuyS

So big conundrum and conscience wrestling here;

I have submitted my first PPI claim via your excellent Resolver tool against Bank of Scotland for a 5 year loan that was sold to me over the phone in 2005. The £5k loan was to pay off the debt I owed on a Bank of Scotland Preference Credit Account that had came as a 'perk' with a Capital Bank car loan I took out in 1998 as they were cutting the credit limits to a minimal level. I have since launched a claim direct with Bank of Scotland for the "Credit Protection Insurance" that was charged on this "Preference" account and I am trying to find the paperwork for the car loan.

So the good news is, I got a letter of apology from Bank of Scotland last week upholding my complaint for the 2005 loan and giving me a pay-out of £5396.27 after tax :j
the money arrived in my account today so I have paid off my overdraft and credit cards straight away :money:

Now the bad news, I noted that nearly £550 tax had been deducted and, given that I am a non-tax payer, I rang HMRC regarding how to go about this. Apparently they class PPI payouts as "Income" and I would therefore have to declare it as such against any benefits I might be claiming [eg. Tax Credits, JSA/ESA, Pension, Carers Allowance, Housing and/or Council Tax Benefit and, of course, the dreaded Universal Credit etc.] :eek:

Now my understanding of the whole PPI scandal payouts AND my reading of the offer letter I received from Bank of Scotland is that:
1. the "Redress due" of £3,205.54 is actually a full REFUND of the PPI payments I was wrongly charged,
2. the "Compensatory interest" of £2,738.41 is exactly that, COMPENSATION that is calculated by using a statutory rate of 8%,
3. the "Tax withheld" is the money Bank of Scotland are taking off the compensation because they are "...obliged to deduct income tax at the basic rate" so 20% then and it's INCOME tax which means the Government sneakily gets a cut of the PPI payouts :shocked:

But hang on a second, the next line in the letter then reads "The gross interest will count towards your personal savings allowance" it later states "Please note this gross interest counts towards any Personal Savings Allowance."!!!
So which is it? Income or Savings???
If it's "Savings" then I have a £1000 per year allowance this year so I can claim the tax back and the compensation amount doesn't affect any benefits in my situation [you can have around £6k in total in savings before being penalised].
If it's "Income" then how are the Department of Work & Pensions going to judge it? Would they class it as salary for 1 day, 1 week, a month, a year? Or spread it over the 8 years since I paid off the loan?

Either way, at this level of payment some of the most vulnerable people in society [eg. those with disabilities, the elderly, unpaid full-time carers of relatives, etc.] are going to be unfairly ripped off a second time and put through the nightmare and misery that is the draconian benefits system :mad:

Now the conundrum for me is, should I cancel my other claims and let the banks get away with it [madness surely] because I want to avoid being potentially penalised by the benefits system or wrestle with my conscience and accept the loss of the tax?

In case anyone is wondering, I was extremely ill [not life threatening] and heavily medicated between 2003 and 2006 and it has left me with some disabilities and the loss of my career and Bank of Scotland sold me their "Gold Level PPI" cover putting my current occupation at the time as.....
wait for it.....

"Medically Retired"!!!

antrobus

The interest of £2,738.41 is income. The Bank of Scotland is indeed obliged to deduct income tax at 20%. Depending on your personal circumstances, you may be able to reclaim that from HMRC.

I suspect you are probably required to declare that income to the DWP.
https://www.gov.uk/report-benefits-change-circumstances

The Bank of Scotland has no control over either the tax system or the benefits system.

societys_child

sold me their "Gold Level PPI" cover putting my current occupation at the time as.....
wait for it.....

"Medically Retired"!!!

:huh:
And your point is?

-taff

That they should not have been sold it because they weren't working?


OP, are you on means tested benefits? If yes, you hould declare it but find out how much you are allowed to have in savings, it's about 6,000 I think, so if it is, and you don't ave to declare it, make sure your savings don't go above that. the benefits board should be of more help.

societys_child

That they should not have been sold it because they weren't working?

I just wondered why the op emphasised 'medically retired' when they've already agreed a refund?
We're all subject to tax.


If op is below his annual yearly taxable income, the tax deducted can be reclaimed using tax form R40.

antrobus

-taff wrote: »

...
OP, are you on means tested benefits? If yes, you hould declare it but find out how much you are allowed to have in savings, it's about 6,000 I think, so if it is, and you don't ave to declare it, make sure your savings don't go above that. the benefits board should be of more help.

The OP has stated that they used the redress to pay off their "overdraft and credit cards straight away", so I don't believe they will have an issue with the savings limit.

-taff

If their redress was arond the five grand mark, and they're contemplating making more, it's as well to find out if there are limits to savings to make sure they don't go over that mark with any future complaints. The interest on any successful ones will see them paynig more interest and they would be taxed on that.

Like I said, I'm not sure if it's six or sixteen [ seen those numbers bandied about recently but can't remember where] so ensuring that there is no need to declare it would be better.
If you mess around with benefits thses days, you can wait an age for them to be reinstated so best not to take the chance.

antrobus

-taff wrote: »

Like I said, I'm not sure if it's six or sixteen [ seen those numbers bandied about recently but can't remember where] so ensuring that there is no need to declare it would be better...

As far as means-tested benefits are concerned, it's both.

If you have £16,000 or more in savings you get nothing. If you have £6,000 or more, benefit is reduced by £4.35 for every £250 you have in excess of £6,000.

[Deleted User]

Hi - it's not "savings" it's "savings interest". The compensatory interest is the same as interest on any savings account.

It's better to think of it as interest (rather than compensation) on money that you "could" have had in a savings account if you hadn't paid it as PPI. It's interest at a very favourable rate and all interest (other than special acounts like ISAs) is relevant for income tax purposes.

You would only have "savings" if you put any of the money you've received (the refund or the interest) into a non-tax free interest bearing account , but it sounds like you've used it to reduce or pay off debts so the amount of your savings for means testing will not be affected.

The "savings interest" (of any kind - PPI or not) is income for income tax purposes. Always has been. In the past most savings was paid after basic (20%) income tax deduction. When they brought in the personal savings allowance, banks started paying it without tax deducted. PPI interest is treated differently and 20% tax is almost always deducted - don't ask me why.

It just happens that there is now a personal savings allowance specific to savings income which you can use up before having to think about it's effect on income tax.

For many people this is a pain because they didn't owe that tax and then have to go through a reclaim procedure with HMRC.

In your case, the compensatory interest you have had so far is more than the personal savings allowance. So the face that income tax has been deducted simplifies things for you as you don't need to go to special efforts to declare it.

Depending on your total income, it's possible that you could obtain a refund of the tax deducted. You can find out a bit more here and perhaps get some assistance from someone who can go run through a tax calc with you to check: https://www.gov.uk/apply-tax-free-interest-on-savings

Cheers
Stuart

GuyS

Right, a big thank you to all your replies. They are proving most helpful and informative to me and show exactly why we need forums like this.
I ought to say that with this particular PPI claim, BoS paid out the full amount owed without any questions in less than 5 weeks from the complaint being made. So for that I have to give them credit.

Antrobus - It appears over your posts that your reading of this situation is actually very similar to my own conclusions regarding how easily this could start to to affect means-tested benefits. However, because this is "Income", it then potentially brings into play the reduction of £1 of benefit for every £1 earned. The problem then is what the benefits agencies decide is the time period that these sums are 'earned' [ie. 1 day, month, year, etc].

Societys child - You are quite right and I agree, we are all subject to the tax laws of the land and thank you for letting me know which HMRC form I require. However, in answer to your question, I was just trying to show how badly PPI was mis-sold and why it is such a scandal [possible case study for Mr. Lewis?]. The fact that a company could sell a product covering unemployment, illness [not pre-existing] and death [not related to a pre-existing condition or it's treatment, of course] to someone that they themselves stated on the paperwork was unlikely to be ever employed due to life-changing medical conditions and potentially harmful treatments is scandalous. In other words, they already knew that it was worthless to me at the time of sale of the loan in 2005.

-taff - To answer your question, yes I am on means tested benefits and, since I first became ill, been trying to support my family ever since on it and keeping a roof over our heads. It appears from your second post that you know the potential hazards of trying to keep within the rules of the benefits system, the timescales and the reason why I have the problem. Basically I am more worried about falling foul of the DWP and HMRC benefit rules than I am about letting the banks etc. get away with it just as you suggest. This does however highlight the potential issues that some of the most vulnerable people in society, that were mis-sold PPI, would face when trying to reclaim it that aren't otherwise discussed.

Stuart - Your post also confirms my understanding of the situation when personal/family circumstances aren't totally dependent on the benefits system. However, I know from bitter experience that if the DWP's benefit 'advisors' start a query about potential problems we could be in for a witch hunt that can see ALL benefits put on hold for 3+ months [over 18 months in my case] whilst investigations and tribunals take place.

N.B The savings bands are counted as the total household savings so the £6k start to the £16k max does not change depending on the number of family members, ages or work status.