Customers who were mis-sold Payment Protection Insurance (PPI) are liable for tax on the refunds they receive.
The Financial Services Authority (FSA) awarded refunds to PPI customers who had been mis-sold policies, plus 8 per cent interest on the money they originally spent on the policy. This interest is subject to tax it has been revealed, potentially earning the government several hundred million pounds.
Speaking on Radio 4′s Money Box programme, a spokesperson 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 compensation claims.’
PPI, which is sold alongside credit cards and loans, is designed to cover repayments if the customer can no longer meet them, perhaps due to illness or redundancy. However, up to 6.4 million people are believed to have been mis-sold PPI policies, with a number of unacceptable selling practices coming to light in an investigation by the FSA.
Some customers were told that PPI was a condition of the loan agreement they were taking out, while others were sold policies they could never claim on because they did not meet the qualifying criteria because of age, employment status or health difficulties.
Since the scandal, the FSA has tightened regulations to ensure that PPI is not sold at the point of purchase of loans and credit cards. This allows the customer to compare products at their leisure.
The regulator has also banned so-called single premium PPI, when the total cost is added to the cost of the loan.
HM Revenue & Customs is assuring PPI customers that they will not be worse off as a result of paying tax on the interest on PPI refunds. The spokesman said: ‘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.’
Sally Bowyer, Managing Director of leading financial claims firm Brunel Franklin, said that consumers could recoup many years’ worth of premiums plus interest. “If you were mis-sold PPI, you may be entitled to several years’ premiums plus 8% interest, which can in some cases amount to several thousands of pounds.”
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.