Tax office using PPI as income

RichW52

Dazed_and_C0nfused said:

I don't understand why the calculation(?) would show less than £6,082 but I now think you have maybe misunderstood how tax on savings interest works.

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?

I was expecting to claim back the tax paid on the PPI and not owe them . We had already had the £1,216.46 deducted from the payout . 

[Deleted User]

You haven't paid any interest on the PPI.  You're paying it on the interest which far exceeds anything you would have got in the bank.

That's why you're in a much more favourable position.

Dazed_and_C0nfused

How exactly are you worse off.   

You have received £x PPI refund.

Plus £4.2k in statutory interest/compensation (net of tax deducted at source and extra tax you need to pay to HMRC)

Most people would, metaphorically, kill to get what is effectively 4.8% interest (after 40% tax).

SonOf

I was expecting to claim back the tax paid on the PPI and not owe them . 
Why did you expect that?  
The interest free allowance for a higher rate taxpayer is £500.  Your interest is £6043.  Way over the free allowance.

We had already had the £1,216.46 deducted from the payout . 
That is basic rate tax.    You also have to add the higher rate tax difference to the amount that takes you above the higher rate band.  Just as Dazed and Confused posted higher up.

RichW52

SonOf said:

I was expecting to claim back the tax paid on the PPI and not owe them . 
Why did you expect that?  
The interest free allowance for a higher rate taxpayer is £500.  Your interest is £6043.  Way over the free allowance.

We had already had the £1,216.46 deducted from the payout . 
That is basic rate tax.    You also have to add the higher rate tax difference to the amount that takes you above the higher rate band.  Just as Dazed and Confused posted higher up.

I am not in the higher rate tax ., I pay tax it 20% but with the PPI it’s tipped it into 40% .. If I hadn’t completed the R40 they wouldn’t of known about it ? 

[Deleted User]

I suspect HMRC are more clued up on tax evasion than you may think...

RichW52

So to summarise .. basically a lot of interest was paid to me ...whereas some PPI claims are more refund than interest ... and all interest will be taxed and I will pay more because of the large amount . The total interest alone is considered savings allowance ? 

[Deleted User]

RichW52 said: some PPI claims are more refund than interest ...

Rarely..

Just note  that only the interest is taxable 

RichW52

It’s sorted now and due to some incorrect information they had it doesn’t push me over the threshold into 40% tax so all is good !