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

Dazed_and_C0nfused

newby_2 said:

Hi All 
Wondered if anyone can provide some guidance 
I have received a PPi payment in 20-21 tax year . I have now looked to claim back the interest and submitted an R40 form to HMRC. They have finally responded and said that they cannot process on a R40 form as I have been filling in self assessment (not anymore as retired)
They have sent me a copy of my completed form but said I need to make changes online. However the tax year is now closed and not able to be amended online( which begs the question why didn't they know this when writing to me) .
I am now asked to write to them detailing the same information included in the form, a delay tactic I'm thinking ? anyone else experienced or settled this way ?
thanks

newby_2

They are correct although could possibly have been more helpful.

An R40 cannot be used for any tax year when a Self Assessment return has been submitted (or is due to be submitted).

And the time limit for amending a 2020-21 Self Assessment return has long since passed so if you have filed an incorrect return and omitted some taxable income the only option you have is to make a claim for overpayment relief.

Guidance is here at the "Write to HMRC" section,

https://www.gov.uk/self-assessment-tax-returns/corrections

This will have happened to lots of people who file incorrect returns and then use the wrong process when trying to correct things.

JacCritter

Dear MSE Forum

I was awarded PPI compensation in January 2020, but had tax charged on the compensation amount rather than the notional interest at 8%. I have completed the R40 3 times, sent 2 signed for letters with evidence of the figures I used and spoken on the telephone to HMRC several times before raising a complaint. They have come back to me and told me I owe them money, as the tax paid on the compensation should have been at 40%, despite my sending them copies of the calculation from Barclaycard, which clearly shows they have taxed the wrong amount. HMRC are not able to apply the 40% calculation to the interest estimate to resolve my overpayment of tax, despite it being part of the compensation calculation. They suggested I contact Barclays and get the compensation restated. Barclays have opened a new case and will investigate, but advise that their calculation based on the statutory compensation is correct.

I have 2 questions here, as I am beginning to doubt my own sanity. Firstly, the websites all indicate that if you have overpaid tax on ppi compensation (usually because you can earn £500 tax free before you start paying tax), you can claim it back on form R40 if don't fill in a self assessment. I have tried to do this multiple times, but HRMC won't accept that Barclays calculation is wrong, even though their own website states what the calculation should be. Is this what others have experienced, that they have to go back to the organisation who paid the compensation if they have made an error, rather than HMRC resolving it?

Secondly, I'm fairly sure that I can't be the only person Barclays have taxed on the compensation rather than the interest, given that they believe they are right. I can't therefore be the only person to complain since the tax position was clarified after my 2020 payout. Has anyone else had these issues with Barclays and got a successful statement of the compensation? If you can share your resolution, it might help speed up my process so I can get the tax back before 5th April.

Thanks

Dazed_and_C0nfused

JacCritter said:

Dear MSE Forum

I was awarded PPI compensation in January 2020, but had tax charged on the compensation amount rather than the notional interest at 8%. I have completed the R40 3 times, sent 2 signed for letters with evidence of the figures I used and spoken on the telephone to HMRC several times before raising a complaint. They have come back to me and told me I owe them money, as the tax paid on the compensation should have been at 40%, despite my sending them copies of the calculation from Barclaycard, which clearly shows they have taxed the wrong amount. HMRC are not able to apply the 40% calculation to the interest estimate to resolve my overpayment of tax, despite it being part of the compensation calculation. They suggested I contact Barclays and get the compensation restated. Barclays have opened a new case and will investigate, but advise that their calculation based on the statutory compensation is correct.

I have 2 questions here, as I am beginning to doubt my own sanity. Firstly, the websites all indicate that if you have overpaid tax on ppi compensation (usually because you can earn £500 tax free before you start paying tax), you can claim it back on form R40 if don't fill in a self assessment. I have tried to do this multiple times, but HRMC won't accept that Barclays calculation is wrong, even though their own website states what the calculation should be. Is this what others have experienced, that they have to go back to the organisation who paid the compensation if they have made an error, rather than HMRC resolving it?

Secondly, I'm fairly sure that I can't be the only person Barclays have taxed on the compensation rather than the interest, given that they believe they are right. I can't therefore be the only person to complain since the tax position was clarified after my 2020 payout. Has anyone else had these issues with Barclays and got a successful statement of the compensation? If you can share your resolution, it might help speed up my process so I can get the tax back before 5th April.

Thanks

There is an awful lot of misunderstanding about tax deducted from PPI related payments.

Tax (at 20%) was only ever deducted from the statutory interest element and the potential for any refund of this tax depends entirely on your own personal tax situation.

It is very easy for a higher rate payer to owe extra tax despite the first £500 being taxed at 0%.

For example let's say you had PPI related interest of £5,000 and £1,000 tax had been deducted at source.

Ultimately this could well be taxed like this,

£500 x 0% = £0.00
£4,500 x 40% = £1,800
Less £1,000 tax deducted at source = £800 additional tax to be paid to HMRC 

What exactly have you told HMRC the gross interest and tax deducted amounts are?

Decorum1

Hi I have filled out the forms to claim the tax back from a ppi claim. Hmrc have sent the form back to me asking for proof of the company. The only proof I have is their name on my bank statement, I have researched the name and found a phone number but no one can help. I feel like I'm going around in circles. Can anyone help please on where to go next. Thanx

Dazed_and_C0nfused

Decorum1 said:

Hi I have filled out the forms to claim the tax back from a ppi claim. Hmrc have sent the form back to me asking for proof of the company. The only proof I have is their name on my bank statement, I have researched the name and found a phone number but no one can help. I feel like I'm going around in circles. Can anyone help please on where to go next. Thanx

If you don't have proof of the tax deducted then I suspect HMRC won't make a refund.