Can I get tax back on my PPI refund and do I need to use a claims firm to do it?
There’s no need to pay extortionate fees for this service when it’s an easy process to make own claim
Ihave been getting calls telling me that I’m owed some tax back from HMRC on a PPI refund I received. The company that called will charge 39 per cent for getting this money back – can I do this myself?
The deadline to reclaim compensation for mis- sold Payment Protection Insurance ( PPI) passed in August last year, but we at Which? are still fielding queries about PPI. I’m not surprised – PPI is the biggest financial mis- selling scandal we’ve ever seen, and a quite unbelievable £ 38.3bn has been paid out, according to the Financial Conduct Authority ( FCA).
Of course, whenever there is mis- selling, there are companies hovering around offering to help you make a claim for recompense. Claims management companies played a huge role in the PPI scandal ( for better or worse), helping many people make a claim but charging huge fees – sometimes as much as 40 per cebt of your payout – as a result. Which? has long maintained that you didn’t need to use a claims company to get a PPI payout, as the process was relatively straightforward and you did not have to part with such a large chunk of your compensation. Now that you can no longer make a claim, it looks like these firms are attempting to pick up the scraps of the saga by now offering to help reclaim tax.
It’s worth exploring why they are contacting you about
this – after all, isn’t financial compensation paid tax- free?
Well, your PPI payout was probably made up of two parts – the actual amount you spent on the insurance and ‘ statutory’ interest of eight per cent a year for each of the years since you purchased PPI. There could sometimes be a third element, particularly if you took out a loan. Some firms made you bor
row more money to purchase the PPI, so if this happened to you, you’d be able to reclaim the interest you paid ( and would earn statutory interest, too).
Of these elements, it is the statutory interest that is potentially taxable. Most payouts would come with 20 per cent deducted. But you can claim this back as four years ago, the personal savings
allowance was introduced which stopped millions of savers paying tax on their savings interest. If you’re a basic- rate taxpayer, you can earn £ 1,000 in interest before you pay income tax. Higherrate taxpayers ( those who earn above £ 50,000) can earn £ 500 in savings interest before tax.
The tax is calculated on the year that you received the
payout, not the year you took out the PPI, so if it was on 6 April 2016 or later, you can reclaim the tax you’ve paid. You cannot reclaim tax from any earlier years, as you can only claim overpaid tax going back four years.
In answer to your question, it is incredibly simple to reclaim this. All you need to do is complete the R40 form on HMRC’S website and send it back and you can get the money back. You don’t need to use a claims management company, and you certainly should avoid anyone charging such an extortionate fee. Claims firms have not been able to charge anything more than 24 per cent for claims relating to PPI, so this firm is breaching the rules.