PPI Refund Higher Rate Tax Liability

Freddykrueger69

Apologies for coming here but I am just off a call with HMRC where the total call length including waiting was over 90 mins.....

To strip it down myself and my wife received a PPI refund via Nationwide.  I am a higher rate tax payer and my wife is basic rate.  I called HMRC to find out what my liability would be and after all that time the replied saying "an extra 20%"

To give some facts and figures and very close to the figures, the PPI premium refund was fairly small but the claims date back from mid 90s so the compensation interest element amounts to circa £4000.  From that they have deducted basic rate tax i.e. £800.  Is it really the fact that of that interest - say my portion is £2000 and they have already paid £400 in basic rate tax that I need to pay an extra £400.

This is the conclusion that I got from them at the end and they said they would send out a simple tax calculation at end of tax year - no idea how/when this happens.

I just find them so frustrating to deal with

MorningcoffeeIV

Freddykrueger69 said:

.  Is it really the fact that of that interest - say my portion is £2000 and they have already paid £400 in basic rate tax that I need to pay an extra £400.

If you're a higher rate tax payer, yes, as you've paid insufficient tax.

Freddykrueger69

MorningcoffeeIV said:

Freddykrueger69 said:

.  Is it really the fact that of that interest - say my portion is £2000 and they have already paid £400 in basic rate tax that I need to pay an extra £400.

If you're a higher rate tax payer, yes, as you've paid insufficient tax.

Perfect that is all I was looking for - I just didn't believe it was that simple but they seemed to make it far too complicated.  I just wanted to know what I owed and how to pay it - you have at least clarified on the first part

Dazed_and_C0nfused

@Freddykrueger69

It might be an extra £400 but equally it might not be that much.  And in some niche circumstances it could actually be more than £400.

If you are already a higher rate payer and don't stray into HICBC or tapered Personal Allowance territory then the first £500 of interest is taxed at 0%.  And anything above that will be taxed at 40%.

So it could easily be £400 (£2,000 x 40% less £400 deducted at source). 

But it might only be £200 (£500 x 0% + £1,500 x 40% less £400 deducted at source).

How much other interest did you receive (or will you receive) in the tax year the PPI related interest was paid?

If it is the current tax year then you can expect the tax calculation in about 12 months time.

As a basic rate taxpayer your wife can potentially have the whole of her £2,000 taxed at 0%.  It depends on how much of her basic rate band has been used from her non savings non dividend income.

And it's equally possible the £2,000 could push her into being a higher rate taxpayer.

Freddykrueger69

Dazed_and_C0nfused said:

@Freddykrueger69

It might be an extra £400 but equally it might not be that much.  And in some niche circumstances it could actually be more than £400.

If you are already a higher rate payer and don't stray into HICBC or tapered Personal Allowance territory then the first £500 of interest is taxed at 0%.  And anything above that will be taxed at 40%.

So it could easily be £400 (£2,000 x 40% less £400 deducted at source). 

But it might only be £200 (£500 x 0% + £1,500 x 40% less £400 deducted at source).

How much other interest did you receive (or will you receive) in the tax year the PPI related interest was paid?

If it is the current tax year then you can expect the tax calculation in about 12 months time.

As a basic rate taxpayer your wife can potentially have the whole of her £2,000 taxed at 0%.  It depends on how much of her basic rate band has been used from her non savings non dividend income.

And it's equally possible the £2,000 could push her into being a higher rate taxpayer.

Thanks for the response.  Most if not all savings are in an ISA but I will need to check any other interest that has been accrued.  The PPI refund has just been sent to me a few days ago.  Also the £2000 will not push her into higher rate.

The annual PSA is £1000 for basic rate and £500 for higher tax rate - I assume these cannot be rolled over for instance if you don't use in a particular year?

Dazed_and_C0nfused

Freddykrueger69 said:

Dazed_and_C0nfused said:

@Freddykrueger69

It might be an extra £400 but equally it might not be that much.  And in some niche circumstances it could actually be more than £400.

If you are already a higher rate payer and don't stray into HICBC or tapered Personal Allowance territory then the first £500 of interest is taxed at 0%.  And anything above that will be taxed at 40%.

So it could easily be £400 (£2,000 x 40% less £400 deducted at source). 

But it might only be £200 (£500 x 0% + £1,500 x 40% less £400 deducted at source).

How much other interest did you receive (or will you receive) in the tax year the PPI related interest was paid?

If it is the current tax year then you can expect the tax calculation in about 12 months time.

As a basic rate taxpayer your wife can potentially have the whole of her £2,000 taxed at 0%.  It depends on how much of her basic rate band has been used from her non savings non dividend income.

And it's equally possible the £2,000 could push her into being a higher rate taxpayer.

Thanks for the response.  Most if not all savings are in an ISA but I will need to check any other interest that has been accrued.  The PPI refund has just been sent to me a few days ago.  Also the £2000 will not push her into higher rate.

The annual PSA is £1000 for basic rate and £500 for higher tax rate - I assume these cannot be rolled over for instance if you don't use in a particular year?

No, they cannot be rolled over.

Have you factored in any available savings starter rate for your wife? 

If she isn't able to use that and has minimal non ISA interest then she could easily still be due the best part of £200 back.

Freddykrueger69

Dazed_and_C0nfused said:

Freddykrueger69 said:

Dazed_and_C0nfused said:

@Freddykrueger69

It might be an extra £400 but equally it might not be that much.  And in some niche circumstances it could actually be more than £400.

If you are already a higher rate payer and don't stray into HICBC or tapered Personal Allowance territory then the first £500 of interest is taxed at 0%.  And anything above that will be taxed at 40%.

So it could easily be £400 (£2,000 x 40% less £400 deducted at source). 

But it might only be £200 (£500 x 0% + £1,500 x 40% less £400 deducted at source).

How much other interest did you receive (or will you receive) in the tax year the PPI related interest was paid?

If it is the current tax year then you can expect the tax calculation in about 12 months time.

As a basic rate taxpayer your wife can potentially have the whole of her £2,000 taxed at 0%.  It depends on how much of her basic rate band has been used from her non savings non dividend income.

And it's equally possible the £2,000 could push her into being a higher rate taxpayer.

Thanks for the response.  Most if not all savings are in an ISA but I will need to check any other interest that has been accrued.  The PPI refund has just been sent to me a few days ago.  Also the £2000 will not push her into higher rate.

The annual PSA is £1000 for basic rate and £500 for higher tax rate - I assume these cannot be rolled over for instance if you don't use in a particular year?

No, they cannot be rolled over.

Have you factored in any available savings starter rate for your wife? 

If she isn't able to use that and has minimal non ISA interest then she could easily still be due the best part of £200 back.

I haven't no - I guess I need to look at liability for my element and then perhaps if she is due anything back for her element.  Is that through R40 form?

Dazed_and_C0nfused

If her non savings non dividend income, which is often just PAYE earnings (including any company benefits) are going to be at least £18,570 then she's unlikely to be able to use the savings starter rate band.

Same for yourself.

If she is going to be a refund then yes an R40 is the correct form to complete next year.  She includes all taxable income on this, including any normal non ISA interest.

I suspect you already realise this but you do not enter the PPI refund.