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Martin Lewis: Had a PPI payout? If so, you can reclaim the tax on it - Page 6

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Martin Lewis: Had a PPI payout? If so, you can reclaim the tax on it

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  • pauline123pauline123 Forumite
    13 posts
    Part of the Furniture 10 Posts Combo Breaker
    MoneySaving Newbie
    HI all, I put in for 3 different (Claim Tax Back) PPI Payments on the 16th of April 2019, for the tax year 2018-2019 , Got a reply on the 31st May 2019, saying they would look into this matter when they received my P60 for 18/19, and this was normally sometime between June and Oct???, and if anything owing would write and tell me.

    Well I got my P60 in April off my employer?? which is what i used to fill in the form - So why do they only receive P60 sometime between June and Oct ??

    anyway just thought i let you know how this process was going for me - will update as and when.
  • xpfxpf Forumite
    475 posts
    Part of the Furniture Combo Breaker
    ✭✭
    I received a PPI payout of £1769. This was calculated as:
    £811 PPI Premium Redress
    £1197 Taxable interest @ 8%
    with £239 tax deducted.

    This payout was late last year (2018/19 tax year) I am a basic rate tax payer and earn around £43k.

    I do not have any savings so have not earned any interest in that respect.

    I've applied to HMRC for a tax refund and been refused as apparently I have paid the correct amount in tax :(

    Are HMRC correct?
  • Dazed_and_confusedDazed_and_confused Forumite
    6.5K posts
    Uniform Washer
    ✭✭✭✭
    I received a PPI payout of £1769. This was calculated as:
    £811 PPI Premium Redress
    £1197 Taxable interest @ 8%
    with £239 tax deducted.

    This payout was late last year (2018/19 tax year) I am a basic rate tax payer and earn around £43k.

    I do not have any savings so have not earned any interest in that respect.

    I've applied to HMRC for a tax refund and been refused as apparently I have paid the correct amount in tax

    Are HMRC correct?

    Based on the information you have provided no.

    However your post suggests you may have inadvertently confused HMRC by mentioning things which are irrelevant.

    If we assume you have paid the correct amount of tax on your earnings and have no interest other than from the PPI payout then the interest would be taxed as follows,

    £1,000 x 0% = £0.00
    £197 x 20% = £39.40
    Tax deducted £239 less tax due £39.40 = refund due of £199.60.

    In reality you probably owe a couple of quid due to how PAYE works so you would expect an actual refund of around £197-198.

    What may have confused matters is you mentioning the PPI redress. How did you claim the repayment?

    If you completed an R40 what did you enter?

    Without knowing this it's impossible to say where the problem lies.
  • So following Martins advice I completed an R40 form to claim tax deducted from my PPI payout. Instead of receiving a payment from HMRC I got a letter telling me I owe £842.30 in unpaid tax. Not a happy bunny. Not being a tax expert could do with some help/advice.
    On the R40 details entered as follows, box 2.1 (total pay) £45999.95, box 2.2 (tax taken off) £7008.50. (From my P60)
    Box 3.1 (net interest from ppi payment) £3529.94,
    Box 3.2 (tax taken off) £882.49
    Box 3.3 (gross amount) £4412.43
    These were figures I got from the section 975 certificate provided by Lloyds for tax year to April 2018.
    I was expecting a £500 rebate but instead got a letter saying I owe £842.30.
    The letter gives various income & deductions for medical insurance & job expenses but the highlights are.
    Total taxable income £39083.
    Income tax due £8733.20
    Income tax paid £7890.90
    You owe HMRC £842.30.
    Help.
  • Dazed_and_confusedDazed_and_confused Forumite
    6.5K posts
    Uniform Washer
    ✭✭✭✭
    What made you think you were entitled to a £500 refund in the first place?
  • I thought that as a higher rate tax payer my tax free interest allowance was £500. I had been deducted £882.49 tax from the gross amount. £500 of this should have been tax free. Do you have any advice to offer please?
  • edited 13 June 2019 at 6:17AM
    Dazed_and_confusedDazed_and_confused Forumite
    6.5K posts
    Uniform Washer
    ✭✭✭✭
    edited 13 June 2019 at 6:17AM
    There is no "allowance" for savings interest.

    If you were already a higher rate payer then your £4,412 would be taxed as follows,

    £500 x 0% (savings nil rate) = £0.00
    £3,912 x 40% (savings higher rate) = £1564.80

    Total tax due = £1564.80
    Tax paid = £882.49
    Tax owed = £682.31

    Presumably the rest of the underpayment is to do with company benefits and expenses (your tax code may have included provisional amounts with the actual amounts being slightly different?)
    So following Martins advice I completed an R40 form to claim tax deducted from my PPI payout.

    It appears you missed the following parts of his guide.

    If you were a higher-rate taxpayer in the year you got your PPI payout, you should've been paying 40%. You may have done this through self-assessment; if not, let HMRC know.

    Higher or additional-rate taxpayers

    Higher or additional-rate taxpayers will need to declare the extra income (just the statutory interest, not the other parts of the refund) to HMRC to ensure they pay the correct tax.

    Contact your tax office or call the income tax helpline on 0300 200 3300 if you need more info.


    Like a few other things in his guide this isn't totally correct, some higher rate payer payers with smaller amounts of interest could be due refunds.
  • I had a PPI pay-out and was taxed 20% on the interest. I've never had savings so thought I'd be eligible to get a tax refund, but HMRC responded to say I've paid the correct amount of tax.
    I rang them to query the allowance on savings and they said all my allowance was used on my employment, in that I've had my tax free pay and everything else it taxed. Before I could query further, I got cut off, and it took such a long time to get through I didn't try ringing again.
    I'm confused, is there a tax free allowance on savings interest or not?
    Should I challenge HMRC again?
    Please help me understand how it works. :(
  • Dazed_and_confusedDazed_and_confused Forumite
    6.5K posts
    Uniform Washer
    ✭✭✭✭
    is there a tax free allowance on savings interest or not?

    No. If you have used all your Personal Allowance on your employment income then your "tax free (Personal) allowance" has been used up.

    But there are two different 0% tax rates which apply to savings interest.

    One is really only available to lower earners (the savings starter rate) and one is available to those with income of about £17,500 or more in the current tax year (the savings nil rate, often referred to as the Personal Savings Allowance).

    Which tax year was the PPI interest received?

    How much PPI interest was received?

    How much tax was deducted?

    Did you receive any normal taxable savings interest in the same tax year?

    What were the taxable pay, tax deducted and tax code on your P60 for that year?

    If you earned £1,000 or more PPI interest then chances are you could be due about £198 tax refund but it depends on a few things hence the questions above.
  • I really appreciate the help, as I find it difficult to understand.

    Tax year 2017/2018
    Tax code 1143L
    Total pay from all employments before tax - 21877.20
    Tax taken off pay from employments - 2087.60

    Interest awarded on PPI pay-out - 2923.61
    Income tax deducted from interest at 20% - 584.72

    I didn't have any savings, only the PPI pay-out.
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