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PPI refund windfall? Don’t get caught by HMRC for undeclared tax on your income.

Accounting, Budgets, Law, Personal Tax, Tax/VAT Cases, Uncategorized l

ppi-claimsHave you or someone you know received a PPI repayment/compensation?

If the answer is yes, did you know that the interest element of what is received is taxable? Further, did you know that all the banks and building societies making payments are notifying HMR&C of who they are paying and how much? So what does this mean for you?

There have been 2 approaches taken by the banks which isn’t particularly helpful! Some have paid out interest with no deduction of tax, while others have deducted tax at basic rate. Given that we all have different tax positions, this means a number of possible outcomes, and as a guide these are outlined as follows:

– Higher rate tax payer

You need to disclose the interest income on your tax return, and will either have the full amount of tax to pay (if received gross) or a “top up” (if you’ve already suffered a basic rate deduction.

– Basic rate tax payer

Firstly, are you still a basic rate tax payer with the extra income from the (gross) PPI interest?

Secondly, if you have received your interest gross, you will have a tax liability to HMR&C due under self assessment.

If you have received your interest with basic rate tax deducted, and remain a basic rate tax payer including the PPI interest you are fortunately OK – you’ve paid your tax owing.

– Currently a none tax payer

If you currently don’t pay tax, you need to firstly confirm whether with PPI you remain a none tax payer, as the additional income of PPI interest (gross) may take you above your annual personal allowance and mean that tax is due.

If you’ve been paid with no deduction of tax, and remain under the tax threshold, you are OK.

If you’ve had tax deducted, you are likely to be due a refund from HMRC.

 

As you can see PPI interest is not straight forward, and we expect HMR&C to use the information they hold to ensure that they receive the tax due.

If you currently complete a tax return, ensure it is included on the relevant years return.

For further assistance please contact our team on 01904 691141.