Martin Lewis: Had a PPI payout? If so, you can reclaim the tax on it

Dazed_and_C0nfused

hossa25 said:

I think I did - but there seems no way for us to look at what we filled in now. I thought I followed all the guidance and read the Martin Lewis guide as we were doing it a few months ago. But I suppose I need to bite the bullet and just try ringing them. 

Sorry to give such rubbish replies!

D x

Why did you include the PPI refund?

This is what the Martin Lewis guide says,

The money you get paid back for PPI can have up to three main elements...

A refund of the PPI you paid.

If the bank (outrageously) added an extra loan to your original loan just to pay for the PPI, you get back any interest you were charged on this extra loan.

You get statutory interest (at 8% a year, but not compounded) on the total of both those sums, for each year since you got the PPI.

Of these, only the third element is liable to be taxed. This is usually shown on your payout statement. (In the rare event it wasn't shown, if you were paid statutory interest, you can request a certificate from the firm that paid you back your PPI showing the tax deducted.)

The reason tax is due is because this statutory interest is paid to try to return you to the position you would have been in if you hadn't been mis-sold PPI. Therefore – oversimplifying somewhat – it counts as savings interest as if you'd earned it on your saved cash.

hossa25

Hi dazed and confused, 

You are completely correct in highlighting what I missed, I realise now i focused fully in on the “tax taken” from us part of the PPI and hadn’t really absorbed that it was equally important to separate out the “refund” part of the payment received  from the “interest” element.

At the time originally it was just one final figure in our minds, and we didn’t even realise there was any issue being taxed at the time until we saw Martin talking about it on his program earlier this year. 

So yes - thats the crux of my mistake. I put the whole amount we “gained” from our PPI refund into box 3 (or whatever box it was) instead of just the interest element of it.

Managed to speak to HMRC and the gist to resolve is we need to submit a new R40 online with what we should have originally submitted - the total interest  (which for us is four figures combined from our PPI statement) they will then recalculate and issue a new statement to us - which is hopefully at least slightly in our favour this time instead of us owing!


The man I spoke to was very helpful - I had  thought it could be a difficult conversation but it wasnt!  

Thanks again for your help, I did know I had something wrong - I just didn’t know where originally. And I thought I had followed the advice, but again knew I had gone wrong somewhere!  I wasn’t trying to suggest I thought I had done it all right!  I would love to be one of those people where all the words made perfect sense all the time - but they don’t. So appreciate your putting me on the right track. I don’t think I would have called today without the replies which confirmed I did have a mistake I needed to sort!  As originally I thought I had just misunderstood the whole thing. 

Thanks again,

d x

0150201384

Hi. I will earn approx £10000 this financial year plus I will receive £1000 in interest on savings. My tax free allowance is £13750 ( my wife is a non tax payer). I have received a PPI payment and have had £2000 deducted as tax. Can I reclaim any of this ? 

Dazed_and_C0nfused

Presumably you mean you have been paid statutory interest of £10,000, alongside a PPI refund and £2,000 tax has been deducted from the statutory interest.

PPI refunds themselves are not taxable and do not have tax deducted.

Based on your post your tax liability for 2020:21 would be,
Earnings £10,000
Interest £11,000
Taxable income £21,000
Less Personal Allowance £12,500
Income to be taxed £8,500
£5000 x 0% = £0.00 (savings starter rate)
£1,000 x 0% = £0.00 (savings nil rate)
£2,500 x 20% = £500 (savings basic rate)
Tax due £500
Less Marriage Allowance credit £250
Total tax payable £250
Tax already deducted £2,000
Tax overpaid £1,750.

You will need to complete a Self Assessment return to claim the refund (as your interest exceeds £10,000).

rhonag

Hello 
I received PPI pay out in August 2019.
please can you tell me what tax year I need to apply for a tax refund. 

Thanks 

Dazed_and_C0nfused

rhonag said:

Hello 
I received PPI pay out in August 2019.
please can you tell me what tax year I need to apply for a tax refund. 

Thanks 

2019:20 (6 April 2019 to 5 April 2020).

That's assuming you didn't complete a Self Assessment return for that tax year.

phenoplastic

Hi Martin

After considering letting a PPI claim company go after the tax taken from my 2016-2017 PPI award (for about £900) I decided to do it myself, and followed your guide and completed the online equivalent to the R40.  I am both employed and self-employed so am very used to doing tax returns and managing my HMRC online account etc.
Today I received a rejection letter from HMRC, I don't know if I did something wrong, or (as I suspect) they've got this wrong.
"Thankyou for sending us your letter about amending your tax return..
The deadline for amending the 2016/17 tax return was 31 January 2019 and so cannot amend this return. We need to consider whether we can use overpayment relief instead".

They then suggest I make a claim for overpayment relief in a letter to them, but this doesn't seem correct and I've never heard of overpayment relief.
It's a pretty small amount so I don't know if it's worth my time going after this, but on principle I don't want HMRC to hang on money that they shouldn't have.  What do you advise?

Dazed_and_C0nfused

An R40 is for people who have NOT completed a Self Assessment return for the year in question.

MSE choose not to mention this for some unknown reason however it is specifically mentioned on gov.uk

https://www.gov.uk/government/publications/income-tax-claim-for-repayment-of-tax-deducted-from-savings-and-investments-r40

Did you fail to declare the taxable interest (and tax deducted) on your Self Assessment return? 

If so the only option you have is to make a claim for overpayment relief.  There is information about how to do this on gov.uk.

Note most people who are due tax refunds in respect of the tax deducted from the PPI related interest get less than £200 back (or the full amount of tax deducted if less than £200). 

If you paid more than £200 in tax on the interest you may be able to get it all back however that isn't normally what happens.  If you think you are due more than £200 what is the reason you think you would be due more back?

Sunday_Morning

In the last couple of years I've had PPI payments from both the Halifax  (by means of a bank transfer which had no accompanying documentation!) and the HSBC.  I am a 40% taxpayer and assumed when first seeing this year that getting any tax back would not be applicable to me.  However, reading it again, is the tax applied completely separate to income.  I've not got any savings except what's in my pension and am taxed on a PAYE basis each year.  Without any previous savings would I be entitled to the tax that has been deducted upto the personal savings limit? Does the amount paid back as PPI before interest need to be declared at all?   

Dazed_and_C0nfused

PPI refunds aren't taxable and don't have any tax deducted from them.

The statutory interest, which is taxable, is just additional taxable income which has 20% tax deducted.

Whether any refund is due, the correct tax has been paid or additional tax is payable will depend on the amounts involved and your other taxable income.

You could easily be due a refund but just as easily owe additional tax.

For example say the gross interest was £600 with £120 tax deducted and you had no basic rate tax band available and no other complications such as High Income Child Benefit Charge, reduced Personal Allowance or receipt of Marriage Allowance.

The £600 would be taxed,
£500 x 0% = £0
£100 x 40% = £40
Total tax due £40
Total tax paid £120
Tax overpaid £80