Millions of people are facing an unexpected tax bill on their Payment Protection Insurance (PPI) refunds. The banking industry has set aside £6bn to pay for the mis-selling of PPI.
Customers were awarded refunds plus interest of 8% by the Financial Services Authority on the money they originally spent on PPI.
This interest will be subject to tax – earning the government tens of millions of pounds.
A spokesman for HM Revenue & Customs said: “No tax is generally due on the repayment element of refunds paid to those mis-sold PPI. However, the additional interest is taxable – in line with other refund claims.”
They said that “Nobody should be worse off, as had the customer not purchased PPI, but kept that money in an interest-bearing account, the interest received would have been taxable. Customers should check with their PPI provider as to whether tax has been deducted at source.”
Banks have said that they will not be deducting the tax at source; however, one bank said it will.
Loan companies are required to deduct the tax.
Confused customers
Banks have been writing to their customers explaining that they need to contact HMRC themselves to discuss what tax is due on the interest payments. This has left some customers confused.
Credit card customers do not automatically receive interest at 8%. They only receive this if the value of the PPI refund would have meant that they were in credit.
The government will be due a significant sum in tax: The refund will attract interest at a relatively high rate of 8%. This will be taxable and the government will expect to raise several hundred million pounds from this.
Sally Bowyer, Managing Director of leading claims firm, BrunelFranklin.com said, “Making a refund application against a bank or other large financial institution can be a daunting prospect, which is why it is much better to seek help from an organisation like Brunel Franklin, rather than struggle on and be left to try and work out the details for yourself. We operate a no-win-no-fee service and there is nothing to pay until your case is successfully won and the vendor has paid out.”
Learn more about PPI refunds and find out if you could apply for a refund today! Visit the website www.brunelfranklin.com or call Brunel Franklin, free, on 0800 051 54 51.