Could you be eligible to claim back tax on a PPI claim?
Payment Protection Insurance (PPI) was first introduced to cover the repayments on a credit card, overdraft, loan or mortgage for when people are sick and can’t work. However, a system error meant a lot of people who used this ended up being overcharged and even those who have had PPI repayments paid to them already could be owed hundreds from tax.
The money you get paid back for mis-sold PPI can have up to three main elements.
If the bank, outrageously, added an extra loan to your original loan just to pay for the PPI – you get back any interest you were charged on this extra loan. With this people get statutory interest at eight percent a year, but not compounded, on the total of both those sums for each year since they got the PPI.
Therefore, oversimplifying somewhat, it counts as savings interest as if you'd earned it on your saved cash.
This applies even if the PPI payout was used to pay off existing debts with the lender, or went towards claims firms' costs, as you are still benefiting in the same way.
Some people are owed tax after personal saving allowance (PSA) launched on 6 April 2016. revealed.
PSA allows basic 20 percent rate taxpayers to earn up to £1,000 a year of savings interest tax-free, higher 40 percent rate taxpayers can earn £500 and top 45 percent rate taxpayers don’t get anything. The statutory interest from PPI payouts counts within your personal savings allowance.
still automatically have 20 percent tax deducted before you get it. So, if like most people, you haven’t earned over your PSA in the year your PPI claim was repaid, then you should be able to claim it back.
It should be noted tax can be claimed back as far as the 2015/16, before PSA launched, but this only applies to people who were non-taxpayers at the time.
For those who are unsure if it affects them, it likely applies to anyone who had had a PPI payment since 2016.
Ninety-five percent of people don’t pay tax on their payment but tax was taken off automatically.
If you had a low fee PPI claim, get your form and it’ll say what tax was taken off. Most people shouldn’t have paid that tax and can have it refunded.
To reclaim the tax, you will need to fill in an R40 form online which allows those owed money to reclaim tax.
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.