The deadline for claiming back any PPI payments you made for policies sold incorrectly expired on the 29th of August 2019. You should have been able to get your claims filed in time and got your cashback, however, there is still a chance you could still be owed more. What many fail to realize is that part of their pay-outs is taxed at the source automatically. Meaning, if you were ineligible to pay tax for the year, you will be allowed to claim back the extra tax you have paid.
HMRC PPI Tax Refund: A Detailed Guide
Payment Protection Insurance (PPI) policies should have ensured you didn’t get in trouble paying off things like loans, credit cards, and mortgages.
If you became sick or became unemployed, for instance, the policy would keep up your payments until you were able to do so again.
In theory, they were not a bad idea. The trouble was, PPI schemes were extremely profitable, so companies were pushing their staff to promote to their customers at every opportunity, whether they needed them or not.
Many never even realized they’d signed up for PPI as it was included in the small print of their agreements. Others were sold policies they could never use since they did not qualify (if they were self-employed, for instance).
Eventually, the authorities caught on to what was going on and started acting against these companies.
Single-premium PPI policies were banned in 2009, and lenders were forced to start taking complaints seriously. This meant a lot of people got compensation for wrongly sold PPI agreements.
What Got Taxed On PPI PayOuts?
The PPI refunds people received are not taxed as they are for the payments that people should not have paid in the first instance. However, you do not only claim the payments back. You are also receiving interest on them, to try and put you back where you should have been financially if you had not been wrongly charged for PPI.
So, on top of your payments, you are getting:
· Interest on any additional loans that might have been added to your existing ones to fund your PPI payments.
· Another 8% per year in statutory interest.
The statutory interest is eligible to be taxed. It is treated the same as any savings interest you might be getting.
Since 2016, many people have been able to earn up to £1,000 a year in interest tax-free (the Personal Savings Allowance).
That includes the 8% interest on your PPI pay-out. People earning over £50,000 have a lower cap of £500 tax-free, while anyone making over £150,000 gets nothing.
Most of those PPI pay-outs have still been getting taxed at the Basic Rate of 20%, even if they should not have been. That means you could still be owed money even if you were making enough to pay tax.
How Many Years Can You Go Back For The HMRC PPI Tax Refund Claim?
As with all tax refund claims with HMRC, you can backdate your claim up to 4 years. So, as we are currently in the 2021/22 tax year, this would be April 2017 (for the 2017/18 tax year).
Why May You Be Owed HMRC PPI Tax Back On A Payment Protection Scheme?
If you have successfully made a PPI tax claim, most lenders/banks will have deducted the tax at the basic 20% rate before sending you payment even if you are not a taxpayer.
Also, the introduction of the 2016 Personal Savings Allowance means you can earn up to £1000 tax-free on your savings interest every year. This also applies to the statutory interest paid on PPI claims.
So, to sum up, most people who have received PPI pay-outs since April 2016 have been taxed incorrectly.
How Much PPI Tax Refund Can You Claim On Pay-outs before April 2016?
As basic-rate taxpayers should have been paying 20% tax, and that’s what was automatically deducted, there’s nothing to claim back.
Yet non-taxpayers or those earning just enough to pay tax but not much more, so we’re on the starter savings should be able to reclaim some or all the tax on this just like other savings income.
How Much PPI Tax Can You Claim On Pay-outs after April 2016?
The PPI pay-out is taxed in the year it is paid, so even if you took out a PPI policy in, say, 2004, if it was repaid in 2017, it’s that later tax regime that counts.
If you were a non-taxpayer in the year the PPI was paid out (eg, currently that means those earning less than the £12,570 (personal allowance), unless the statutory interest pushes you over the taxpaying threshold, you can claim all the tax back. If you are a basic taxpayer (20%) you claim back up to £1000 of statutory interest which has been taxed and if you are a higher taxpayer (40%) this comes down to £500 you can claim back.
Is The HMRC PPI Tax Refund Available To The Self-Employed?
Yes, you can claim PPI Tax Refund even if you are self-employed, but you should do this with your self-assessment returns or annual tax returns.
Is The HMRC PPI Tax Refund Available For Someone Who’s Deceased?
Yes, it is possible to claim compensation for mis-sold PPI on behalf of a deceased person. You would need to be an Executor on their estate or have the authority to act on their behalf.
Won't HMRC Just Automatically Refund Me The Overpaid Tax On My PPI Pay-Out?
No, usually not, you need to be proactive about checking your tax situation. Apart from the fact that it is your responsibility to make sure you are paying enough tax.
How can I claim back a PPI Tax Refund myself?
You can make a claim for a tax repayment on your PPI interest using form R40 (or form R43 if you are living overseas). You can either do this online or by downloading and printing off a paper form to send by post.
How Do I Get Thea Tax Form R40?
You can download form R40 from GOV.UK.
If you are unable to print the form yourself (or with help from friends/a local library, etc.) then you will have to phone HMRC to request that they send you a copy. The phone number to use is: 0300 200 3300
How Long Does It Take To Get PPI Tax Back After Making A Claim?
At present, HMRC is taking approx. 10 weeks to process PPI tax refund claims, with a further 2 weeks before you receive your payment.
Claiming Tax Back On PPI
HMRC makes these forms pretty complicated, as it includes a whole host of other things which are not relevant to a PPI Tax Refund claim. So, it may be a struggle for those who normally just pay tax via PAYE (ie, the payroll).
You can claim this tax refund online from our website, clicking on the below button. Once you have completed the simple form, we do all the work and send you your payment by cheque.
Published on: 05/05/21