Income Tax charged on PPI refunds
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Ballymena
Posts: 1 Newbie
I took Martins advice and made a claim on 4 PPI premiums I was mis - sold and was successful in reclaiming a combined total of £22,000!
Recently I watched one of Martin's programmes where he was explaining that it may be possible to reclaim the 20% tax that each of the firms deduct prior to their final payment of compensation
I wrote to the tax office and provided details of each of the 4 payments I had received ( total 22,000)
I have now received a reply from the tax office advising that INSTEAD of getting a refund of the tax paid , I HAD UNDERPAID INCOME TAX TO THE AMOUNT OF £3,400!!
When I phoned to enquire about this I was advised that they had treated the £22,000 as INCOME and that this plus my regular income put me into the 40% tax bracket!!
I have now received a breakdown of this which is:
The refunds of PPI which I had received were all paid during the tax 2015- 2016 tax year
The total refunds £22,000 plus my regular income was estimated as £46,000 as the refund was treated as Income.
The tax calculation was therefore 20% charged on £31,000 and the 40% charged on£4,600
It appears that the total tax due on my income (£22,000 PPI refund + my normal yearly income of £25,,000) should have been £8,200 - I had paid £5200 on my yearly income - I was therefore considered to have underpaid £3,071!!!!
I think that it is totally unfair that the tax office have treated my PPI refund as INCOME as not only was this money that I had been pressurised into payment but it was NOT a regular income on a weekly/ monthly basis throughout the entire but WAS 4 one off payments!!
I would be extremely grateful if Martin could give some advice on whether or not the tax office are right in assuming PPI refunds as Income
I am sure that many other people may have fallen into this trap as well if they apply for a tax refund and find that any sizable amount of refunds they get would put them into the higher tax bracket if their refunds were treated as 8ncome!
Many thanks
As
Recently I watched one of Martin's programmes where he was explaining that it may be possible to reclaim the 20% tax that each of the firms deduct prior to their final payment of compensation
I wrote to the tax office and provided details of each of the 4 payments I had received ( total 22,000)
I have now received a reply from the tax office advising that INSTEAD of getting a refund of the tax paid , I HAD UNDERPAID INCOME TAX TO THE AMOUNT OF £3,400!!
When I phoned to enquire about this I was advised that they had treated the £22,000 as INCOME and that this plus my regular income put me into the 40% tax bracket!!
I have now received a breakdown of this which is:
The refunds of PPI which I had received were all paid during the tax 2015- 2016 tax year
The total refunds £22,000 plus my regular income was estimated as £46,000 as the refund was treated as Income.
The tax calculation was therefore 20% charged on £31,000 and the 40% charged on£4,600
It appears that the total tax due on my income (£22,000 PPI refund + my normal yearly income of £25,,000) should have been £8,200 - I had paid £5200 on my yearly income - I was therefore considered to have underpaid £3,071!!!!
I think that it is totally unfair that the tax office have treated my PPI refund as INCOME as not only was this money that I had been pressurised into payment but it was NOT a regular income on a weekly/ monthly basis throughout the entire but WAS 4 one off payments!!
I would be extremely grateful if Martin could give some advice on whether or not the tax office are right in assuming PPI refunds as Income
I am sure that many other people may have fallen into this trap as well if they apply for a tax refund and find that any sizable amount of refunds they get would put them into the higher tax bracket if their refunds were treated as 8ncome!
Many thanks
As
0
Comments
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Martin Lewis sold this site some time ago, but even before he sold, he wouldn't deign to offer forum responses.I would be extremely grateful if Martin could give some advice on whether or not the tax office are right in assuming PPI refunds as Income
Anytime someone claims a tax rebate they open themselves to scrutiny of their entire tax position. The checks involved can easily find that tax is owed as well as due a refund.
However, while you may not have to pay the Taxman additional tax, you appear to have declared your whole redress amount. That is the reason you received a bill.
Note that it's only the interest which is taxable income..
Send HMRC the correct information very quickly0 -
You wrongly declared the PPI refund as income, that was your mistake
I think you will have a fairly long battle to sort this as you should have just filled in form R40 to reclaim the tax paid on the interest element of your refund, not the entire premiums0 -
I think that it is totally unfair that the tax office have treated my PPI refund as INCOME as not only was this money that I had been pressurised into payment but it was NOT a regular income on a weekly/ monthly basis throughout the entire but WAS 4 one off payments!!
You supplied too much information to HMRC and it confused the issue. HMRC are not interested in the PPI redress. Just the interest element.I would be extremely grateful if Martin could give some advice on whether or not the tax office are right in assuming PPI refunds as Income
Martin won't answer.
HMRC only go by what you tell them. You gave the wrong figures.I am sure that many other people may have fallen into this trap as well if they apply for a tax refund and find that any sizable amount of refunds they get would put them into the higher tax bracket if their refunds were treated as 8ncome!
I have not seen this mistake before but I suppose people do make mistakes from time to time. And if you let HMRC know of your error, they can correct it.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Didn't the Personal Savings Allowance of £1,000 "Tax Free Interest" start in the 2016 - 2017 tax year which is the tax year after the OP received their PPI refunds. Unless I'm missing something I'm not sure what Tax Refund the OP was hoping to claim bearing in mind the £25,000 pa normal income for that tax year?
Working the OP's slightly mismatched figures back it appears they received approx. £11,600 in PPI interest & £10,400 in returned premiums so no extra tax to pay but no refund due either, just a self inflicted muddle to sort with HMRC.0 -
There are likely to be two possibilities,
1) The op didn't understand what they were doing and simply filled in the form (incorrectly) in the hope something would be due back
2) The op thought the savings starter rate of tax might apply. This allowed up to £5,000 of interest to be taxed at 0%. So potentially there could be a £1,000 tax refund due. But it is dependent on how much the op earned in that tax year. If this was more than £15,600, as see to be the case here, there's not going to be any refund due.0
This discussion has been closed.
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