For years it seemed that PPI refunds were all that everyone was talking about so when the deadline for making a claim passed, there was relief all round. However, the subject isn’t finished just yet as thousands of claimants may not have received everything they were entitled to.
From January 2011, over £38 billion was paid out due to mis-sold PPI. But if you received your PPI refund in the last four years, you may not have received everything that you’re entitled to.
Many of the PPI payments were taxed at source but if you didn’t exceed your savings allowance you could be entitled to the money back. The amounts aren’t insignificant; depending on how much you received, the overpaid tax could run into hundreds or even thousands of pounds.
Here’s what you need to know about PPI tax refunds – and how to find out if you are owed money.
Is PPI Taxed?
To understand how PPI is taxed, we need to break down the individual elements included in the refund.
Each payment could be made up of:
- The amount of PPI you paid
- Any interest that the bank added to extra loans to pay for the PPI
- Statutory interest at 8% per year
You may have heard that PPI refunds aren’t taxed, and that’s sort of true. The amount paid out as a direct refund of the PPI payments you made are not taxed. The refund of any extra interest you paid is not taxable either. However, the third element – statutory interest – is potentially taxable and you probably had tax deducted from your payment.
Statutory interest is what banks were ordered to pay to try and return you to the position you potentially would have been in if you hadn’t been making the PPI payments. This means the interest is classed as savings, a clumsy oversimplification in many cases.
This interest aka “savings” is subject to tax, and in many cases this would have been deducted before the payment was made to you. For many people, this tax should not have been deducted and they are entitled to a full refund.
Should I Have Paid Tax On My PPI Refund?
If your income is less than £45,000, there’s a very good chance that you shouldn’t have paid tax on your PPI refund.
From 2016 the personal savings allowance was launched which enabled most tax-payers to save up to £1000 per year without being taxed. Interest on bank accounts was automatically paid gross, but interest on PPI payments was subject to 20% tax.
This means if you received a PPI refund in the last four years, you may be entitled to the tax back.
How Much PPI Tax Refund Could I Get Back?
The amount you could be entitled to receive depends on the size of your PPI refund and how long ago the PPI was taken out. Remember, it’s the date the PPI refund was made that matters, not when the PPI was originally taken out.
As an example, if you took the PPI out in 2005, if you didn’t receive a refund until 2017, you could be eligible to reclaim the PPI tax deducted.
Both basic and higher-rate taxpayers are allocated a personal savings allowance; there’s nothing for the top rate taxpayers in the 45% bracket. If you are either a basic or higher-rate taxpayer you could be entitled to PPI tax refund, which may be worth hundreds or in some cases, thousands of pounds.
Non-taxpayers are often eligible to claim a full refund, but eligibility depends on whether the payment would have put you over the regular income tax personal allowance.
If the money received put you over the relevant threshold, it’s still worth making a claim as you’ll still be entitled to a partial refund.
We’ve developed a PPI Tax Rebate Calculator where you can enter details of your refund to get a quick estimate of how much you should be due back.
How to Make a Claim for PPI Tax
If you think you have paid PPI tax and you want to claim your refund, you will need to apply to HMRC. The form you need to complete is either R40 or R43 depending on whether you’re resident in the UK or overseas.
We can help you to reclaim your PPI tax, with a process that’s quick and easy. If you had more than one PPI refund, we can deal with them all together, saving time and inconvenience.
We handle everything and our claims process is fast, so you could have your refund in as little as 8 weeks.
If you’re not sure whether you paid tax on your PPI refund or whether you are eligible, we can check everything on your behalf. You have four years to submit a claim from the date that your PPI refund was made so don’t wait any longer, start your claim today.