Completed R40 - now I owe tax!

DD237

I received £3569.48 PPI in Jan 2020. £453.69 tax was deducted to I thought I would claim it back. Turns out I now owe HMRC £150.71. Does anyone know why this is? 

MorningcoffeeIV

Either because you owe tax (eg due to being a higher rate tax payer) or because you put the wrong figures into the form. 

Did you input the full £3569 by mistake?

DD237

Hi, I input the savings income £4023, and the tax paid £453.69. I've just got through to HMRC (took ages!). They explained that £1000 on the PPI income is tax free, the remainder £3023 is taxable and the £453.69 tax I paid wasn't enough. Should have been £604.60 so I now need to pay £150.71. I'm so confused. I simply thought that as I shouldn't have paid PPI in the first place I shouldn't pay tax. 

Dazed_and_C0nfused

DD237 said:

Hi, I input the savings income £4023, and the tax paid £453.69. I've just got through to HMRC (took ages!). They explained that £1000 on the PPI income is tax free, the remainder £3023 is taxable and the £453.69 tax I paid wasn't enough. Should have been £604.60 so I now need to pay £150.71. I'm so confused. I simply thought that as I shouldn't have paid PPI in the first place I shouldn't pay tax. 

Sadly I suspect you have no idea what you're doing.

PPI refunds aren't taxable and don't have tax deducted.  You would never include them on an R40.

Statutory interest paid alongside the PPI refund is taxable, does have tax deducted and would be included on an R40.

How have you determined the figures you entered on the R40?

Also, ISA interest is "tax free", other interest is taxable although some, often £1,000, may be taxed at 0%.

dunstonh

They explained that £1000 on the PPI income is tax free, the remainder £3023 is taxable and the £453.69 tax

To slightly correct that.... The personal savings allowance is £1,000 if you are a basic rate taxpayer.   So, interest above that, from all sources (i.e. bank & building society plus the PPI interest element) is what matters.

When you filled in the R40 did you also disclose the totals of your bank and building society interest and any other interest received?

I'm so confused. I simply thought that as I shouldn't have paid PPI in the first place I shouldn't pay tax. 

The refund of the premiums paid is not taxed.  Just the interest added on top.   Interest in the UK is potentially taxable (based on income and amount paid) but it was paid with no tax deduction. 

Hence you owed the tax.

DD237

Hi, thank you so much for taking the time to reply. You're right! I don't really know what I'm doing and may have completed R40 form incorrectly. I'll contact HMRC again tomorrow. I just reread my PPI letter - the £453.69 income tax was deducted on the 8% interest paid.

DD237

Forgot to say I'm a basic rate taxpayer and I have no othee savings/interest.

Dazed_and_C0nfused

DD237 said:

Hi, thank you so much for taking the time to reply. You're right! I don't really know what I'm doing and may have completed R40 form incorrectly. I'll contact HMRC again tomorrow. I just reread my PPI letter - the £453.69 income tax was deducted on the 8% interest paid.

So you will probably need to confirm in writing (with a copy of the evidence) that you made an error when completing the R40 and advise HMRC what the correct figures are.

Do you know what type gross interest, tax deducted and net interest figures are?

DD237

I do, thank you. You've been very helpful, and it's much appreciated :-)