Tax office using PPI as income
in Reclaim PPI & other insurance
19 replies 311 views
Can someone please help . I recently was awarded a PPI payout around £6,500 and tried to reclaim the tax paid on the interest with the R40 form . The tax office wrote back saying I owe them Money as they are including the PPI payout as income for the year with my salary and it is now pushing me into the 40% tax bracket ! I have argued that it is only the interest I am taxed on but they say it still has to be included as income .
Can anyone advise me .. Thankyou.
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Interest is income and if you go into the higher rate band, then additional tax will be due.
Not sure HMRC would even know about the PPI refund if you hadn't told them about it in the first place so I suspect they are simply taxing you on the income you declared on the R40 in the first place.
PPI refunds aren't taxable and don't have tax deducted from them.
The statutory interest/compensation paid alongside the PPI refund is taxable and does have tax deducted.
Why not dig out your copy of the R40 and tell us what you declared and then it should be possible to see where you have gone wrong.
That is very confusing. You cannot just add in tax, you have to include the interest as well. I'm not quite as convinced that there is anything wrong now.
Tax is all about the detail so it would help us to help you resolve this if you provided some proper info.
How much was the taxed interest?
How much tax was deducted?
What did you enter on the R40?
Have you received a calculation letter, maybe a P800? If so what did that show for the interest income and tax deduction.
You have £6,043 interest which needs to be taxed. From what you've posted worse case scenario would be,
£500 x 0% = £0.00
£5,543 x 40% = £2,217.20
Total tax due = £2,217.20
Tax deducted by the PPI company £1,208.60*
Tax owed by you £1008.60
*assuming the tax is 20% of the interest in the HMRC calculation
Presumably you had some basic rate tax band unused so the tax owed is a bit less.
What were you expecting to happen?