PPI Tax reclaim

paulb22sky

I am confused by MSE explanations of tax reclaim on PPI - or are HMRC mixing things up with general earnings and income tax... many others also seem to be confused by 'what is actually due to them' when trying to claim back tax charged by the paying banks on PPI payments.

I have just had (Sept 2019) a successful PPI claim payment from Barclays. But they deducted income tax from the payment before paying me. The numbers suggest they have 20% taxed the 'compensation' part of the claim, but I am sure I saw on MSE chats, that this part is not suppose to be taxable?

Payout breakdown listed by bank are as follows:

Refund of PPI payments £760.99
Refund of Interest charged £571.41
Statutory Compensation £1993.42
Income Tax deduction £398.68
Payment received £2927.14

(I can only figure out from these numbers, the tax is 20% of the compensation value...?)

HMRC have replied to my claim for PPI tax back and seem to have lumped the PPI tax claim back, in with a general income tax statement for April 2018-April19... not sure why they have based on last years, if I have just had payment in Sept 2019 shouldn't it be in current year 2019-20? Perhaps just way tax years work...

I had assumed that PPI tax counted as part of a persons 'savings tax allowance', hence the ability for a standard rate tax payer to claim it back, but I have no other significant savings, so shouldn't I be due the 398.68 back..? Instead HMRC reply seems to pull it all in with my main income/salary and not any savings interest/income.

Could all be a complete misunderstanding on my part, but I have two queries that MSE chat does not clear up for me:

1. Should the PPI bank have put any tax at all on the 'compensation' part of the payout?
2. Should HMRC be addressing it as they have, as general income tax and not counting it as a savings allowance iisue?

Not sure this brief enquiry makes total sense or includes enough detail, but appreciate any clarification the MSE team or others can provide.

meer53

If you pay tax at 20% you can claim back the tax on the INTEREST you have been paid, UP TO £1000 per tax year. If you already receive interest on any savings this will be taken into account.

BoGoF

paulb22sky wrote: »

Could all be a complete misunderstanding on my part,

It is, without a doubt.

[Deleted User]

paulb22sky wrote: »

, but appreciate any clarification the MSE team

There is no way you will receive a response on the forum from anyone at MSE. However, reading through this thread will surely provide the answer you crave.

Failing all that HMRC will also put you straight.

To be clear, it is most definitely the "compensation" which is taxed, not the actual PPI refund.

Arthurarthur52

This has confused me as well. My partner received 2 ppi payments this year.
He is unable to work and has overpaid tax already this year. When he spoke to hmrc they said that the ppi tax taken would be taken into account as income and not the £1000 savings allowed. Therefore if he claims a contribution benefit they would calculate 6 weeks after the claim ended or at the end of the tax year. They didn’t suggest that it would be out of the savings allowance.

Dazed_and_confused

Unfortunately the taxation of interest, whether it be from bank or building society accounts or PPI interest is overly complicated and lots of posters on here get very confused with it.

There is no separate "allowance" for interest

There is the Personal Allowance, currently £12,500 for those with adjusted net income of £100,001 or less. For those who have applied for Marriage Allowance the Personal Allowance will be £11,250. You cannot have a Personal Allowance greater than £12,500.

If your Personal Allowance has been used then your interest will be taxed at one (or more) of the tax rates applicable to interest.

Savings starter rate 0%
Savings nil rate 0% (also known as the Personal Savings Allowance)
Savings basic rate 20%
Savings higher rate 40%
Savings additional rate 45%

If you are a basic rate payer earning more than £17,500* in the current tax year from a job, pension, self employment etc then the savings starter rate doesn't apply but you get the benefit of the savings nil rate. This often means people with sufficient PPI interest will get upto £200 tax refund. Not £1,000 refund.
*£16,250 if you have applied for Marriage Allowance

For example say you have a job earning £20k. Plus untaxed bank interest of £100 and PPI interest of £2,000 with tax deducted of £400 then your interest may well be taxed as follows,

£1,000 x 0% = £0.00
£1,110 x 20% = £220.00

Tax due on interest £220.00
Tax deducted from interest £400.00
Tax overpaid £180.00

Arthurarthur52

That makes more sense. not trying to hijack thread but not sure if I can transfer info over.

So in our case partners earnings ytd 3000
Estimated year for year 19/20 £7k

Interest for year 18/19 600
dividends from penny shares 86.30

And has passed his marriage allowance to me.

Therefore the ppi he received would be refunded in full ?? He has 2 at 900 and 1020.

Dazed_and_confused

Interest for year 18/19 600

That is irrelevant, it's the interest in the current tax year (2019:20) that counts. Assuming your reference to "this year" actually means this tax year.

Therefore the ppi he received would be refunded in full ?? He has 2 at 900 and 1020.

That makes no sense

Surely the PPI has already been refunded?

How much tax was deducted from the statutory interest/compensation paid with the PPI refund?

It isn't clear what the £1,020 and £900 figures relate to.

Arthurarthur52

Sorry I said it’s confusing. I think as I am trying to do our self assessment for 18-19 and ppi for 19-20 and getting in a mess so I will ignore the SA Figures.

So for 19/20 he will likely have 7k in taxable income. About £300 in interest from savings as moved half to an isa. Then the tax deducted on the two ppi claims were 900 and 1000.which was 20% of the amount paid. That’s why hmrc have said that if his earnings are under 11500 he will get the full amount deducted plus the 300 tax already deducted for this year. Does that make sense now.

BoGoF

Arthurarthur52 wrote: »

Sorry I said it’s confusing. I think as I am trying to do our self assessment for 18-19 and ppi for 19-20 and getting in a mess so I will ignore the SA Figures.

So for 19/20 he will likely have 7k in taxable income. About £300 in interest from savings as moved half to an isa. Then the tax deducted on the two ppi claims were 900 and 1000.which was 20% of the amount paid. That’s why hmrc have said that if his earnings are under 11500 he will get the full amount deducted plus the 300 tax already deducted for this year. Does that make sense now.

Interest paid is taxable income and to have tax deducted from PPI of £1900 the gross interest would have been £9500 so adding this onto the £7k taxable income you mention you are way over the personal allowance. However as Dazed and Confused mentioned above there is the savings starter rate.

Where does the £300 'other tax" come from.