For the last few years, claims for mis-selling payment protection insurance or PPI have been common and are still ongoing.
PPI is sold to those taking out loans or credit cards as protection against being unable to make the repayments. It includes those policies sold as an annual premium and added to the loan, and those paid on a monthly policy on credit cards for example.
If you have been successful in making a claim, then you would have received a repayment. This could be made up of the following:
- a refund of the PPI premiums paid
- historic interest (interest paid by the customer on the PPI premium if it was added to the loan or credit card)
- simple interest at a rate of 8% per annum which is to compensate the customer for being deprived of the money they had paid to the firm for the PPI.
You should be notified of the basis of the payment and how it is made up.
Why does this matter?
It is often overlooked that the simple interest noted above is taxable and should be included on your self assessment tax return. Depending on who made the payment to you, this may or may not have had basic rate tax deducted and so you will need to check your paperwork. If there has been no tax deducted, then depending upon your circumstances you may need tell HMRC.
Higher rate tax payers will need to pay additional tax on the interest and if no tax was deducted at source then all tax payers will need to pay additional tax.
If you complete a self assessment tax return then you will need to include this on your return.
If you do not complete a tax return then you will need to contact HMRC and declare the additional income in writing (or this may be accepted over the phone).
What if it was a business loan?
If the PPI was paid on a business loan and tax relief claimed on those premiums, the refunded PPI premiums will need to be included in your accounts together with the interest which will also be taxed. The refunded premiums will increase your profits and will be taxed in the normal manner.
What to do now?
If you received a refund in 2012/13, then you will need to include it on your next tax return or write to HMRC soon.
If you received the refund in an earlier year, then you will need to amend your return.
If you are not in self assessment, then you will need to write to HMRC to make the disclosure.
If we complete your return for you, you will need to tell us about any claim and we can then establish the taxable element and ensure you return is complete.
If you have any questions then please contact us .
