Posted by Tax Innovations on 17 Feb 2012
Tax on PPI Payments
Her Majesty’s Revenue and Customs (HMRC) has released advice notes regarding the taxation of interest on PPI compensation payments.
PPI compensation to financial customers who have been mis-sold payment protection is big business at the moment – £379 million in compensation was paid out in November 2011 and £268 million paid out in October 2011.
HMRC has said that generally speaking there is no tax due on the repayment element of the compensation so long as any additional interest has been taxed at source by the compensating company.
However, banks and building societies making any compensatory repayments have no obligation to deduct tax from this interest and so there may be cases where a customer who has received compensation may need to declare and pay tax on the income derived from the interest.
The tax position in relation to PPI repayments will depend on individual circumstances but in general the position will be as follows:
- If the customer is a non-taxpayer and has had tax deducted from the interest, then they may make a claim to have the tax repaid to them by HMRC in the normal way.
- If the customer is a basic rate taxpayer and tax has been deducted from the interest, then they need do nothing further unless they need to complete a tax return.
- If the customer is a higher rate taxpayer who has received interest with or without tax deducted or a basic rate taxpayer who has received interest without deduction, then the interest should be declared to HMRC on a Self Assessment Tax Return in the normal way.
Contact us about Tax on PPI Payments
If you would like any advice regarding PPI payments or would simply like to discuss other ways in which we could help you, please contact us on 01962 856 990 or email firstname.lastname@example.org.
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