MARTIN Lewis is urging everyone to claim back tax on PPI payouts as it could boost your bank balance by hundreds of pounds.
This is because most banks and lenders that sold PPI automatically deduct tax from payouts, even though not everyone has to pay it.
Martin Lewis is urging everyone to claim back tax on PPI payouts
Many firms deduct tax from PPI payouts at the basic 20 per cent rate, meaning non-taxpayers are due the money back, the founder of consumer website MoneySavingExpert wrote in a blog post.
In April 2016, the so-called personal savings allowance was also rolled out, meaning basic rate taxpayers can earn £1,000 a year tax-free interest on their savings – including statutory interest on PPI payout.
Since then, most savings interest has been paid without any tax being taken off, but PPI still has 20 per cent automatically deducted, Martin said.
So even if you do pay tax and you’ve received your PPI payout in the past four years since the personal savings allowance was introduced, you could also be owed money.
If you haven’t already reclaimed PPI, you’ll need to do so before the deadline on August 29, 2019.
What is payment protection insurance (PPI)?HERE’S all you need to know about the mis-selling scandal.
PPI was an insurance policy attached to credit agreements such as loans, mortgages or credit cards.
The idea of these policies was to cover payments when a policyholder fell ill, had an accident or lost their job.
Sales of these policies were popular from the nineties and into the new millennium.
But then consumer groups started raising questions and a series of investigations revealed that lots of people had been sold policies when they shouldn’t have been.
One problem was that sales staff were incentivised to sell PPI at all costs, meaning lots of people ended up being mis-sold to.
Some consumers had policies sold in the small print that they weren’t aware of, others were sold insurance they would never be able to claim (for instance because they were self-employed or retired).
Sales of single-premium PPI policies were banned in 2009 and despite initial opposition, lenders were ordered to consider all PPI complaints in 2011.
Why tax is taken off PPI payouts
The money you get paid back for PPI is usually made up of three main parts, Martin wrote.
This includes a refund of the actual PPI, interest on extra loans the bank may have added to your original loan to pay for the PPI, as well as an annual eight per cent statutory interest on both sums.
Of these, only the statutory interest is taxed, and it’s usually shown on your payout statement.
If it’s not, you can request a certificate showing this from the firm that paid back your PPI.
The reason you’re taxed is because the statutory interest is paid to try and return you to the position you would have been in if you hadn’t been mis-sold PPI, Martin said.
This means it can be counted as savings interest in the same way as if you’d earned it on your saved cash.
MoneySavingExpert The figures are based on estimates and not exact calculations
The tax you can reclaim on payouts
The PPI payout is taxed in the year it is paid, and not in the year the PPI policy was taken out, Martin said.
So if you were a non-taxpayer in the year the PPI was paid out (currently that means those earning less than £12,500 including any statutory interest), you can claim all the tax back.
But the amount of tax you can get refunded, also depends on the year you received the payout. Check below to see what applies to you.
PPI payouts after April 6, 2016:
The personal savings allowance came into force on April 5 in 2016, and it’s a specific amount (on top of the usual income tax personal allowance), that you are allowed to earn tax-free, although only on savings interest.
For example, if you rake in less than £50,000 per year, you’re also allowed to earn £1,000 in interest on your savings per year without having to pay tax on this.
Below’s how much you can get tax-free depending on how much you earn.
Basic 20 per cent rate taxpayers (earning £12,500 to £50,000) can earn £1,000 interest a year tax-free
Higher 40 per cent rate taxpayers (earning between £50,000 and £150,000) can earn £500 interest a year tax-free
Top 45 per cent rate taxpayers (earning over £150,000) don’t get a personal savings allowance
If the total interest you’ve earned from your savings and the PPI statutory interest is less than your personal savings allowance, you are due all PPI tax paid back.
Or if the combined total pushed you over a tax threshold, you should only pay tax on the amount above it.
Alamy If you haven’t yet claimed a PPI refund, you should act soon
As an example, a basic rate taxpayer who last year earned £300 in interest on their savings and got a PPI payout including £750 of statutory interest, would have earned a total of £1,050 in interest – £50 above their personal savings allowance.
Therefore, they should only pay 20 per cent tax on the £50 over their personal savings allowance (ie, £10 tax) and the rest is tax-free.
As the PPI automatically had £150 tax taken off it, the taxpayer is due £140 back.PPI payouts before April 5, 2016:
Sadly, if you received your payout before the personal savings allowance came into effect, you won’t get the additional tax-free allowance.
You can also only claim back four tax years including the current one, so that means the furthest you can go back is the 2015/2016 tax year.
If you’re a basic rate taxpayer, and you’ve had 20 per cent automatically deducted, there’s nothing to claim back.
Or if you were a higher-rate taxpayer, then you should’ve been paying 40 per cent tax.
Yet non-taxpayers should be able to reclaim some or all of the tax on their PPI payout just like other savings income.
How to claim back tax
If you believe you are owed tax back and haven’t reclaimed it yet, you should use the “Claim a refund from tax deducted by savings and investment form” R40, available on the GOV.UK website.
You can make a claim using the online service, or fill in the form on-screen, print it off and post it to HMRC.
To use the online service, you need a Government Gateway user ID and password. If you do not have a user ID, you can create one when you use the service.
If you use the online form, you’ll get a reference number you can use to track the progress of your claim.
Should you need help, you can call the income tax helpline on 0300 200 3300.
MILLION-POUND WASTELAND Inside the £350m mansions left to rot on London’s Billionaire’s Row MAGICAL TREATS Asda is selling unicorn themed desserts – and we can’t wait to try them BRIC-A-BRAC How to get two free tickets to LEGOLAND Windsor Resort worth up to £120 CLOSED DEAL Debenhams store closures – which branches might be closing and why? RETAIL PAIN Debenhams in administration with 50 stores to close as Ashley rescue plan fails SOFAR SO GOOD B&M’s stunning garden furniture is £800 cheaper than identical set from Next
Last week, Martin Lewis warned everyone with a credit card to shift debt now before the top cards are pulled.
Last month, he also issued a new fraud warning after a “spate” of fake HMRC scam calls.
Earlier the money guru has revealed how to claim back £100s from your energy provider.
Martin Lewis reveals how to bag a free No. 7 gift worth £26 from Boots – while only spending £12
We pay for your stories! Do you have a story for The Sun Online Money team? Email us at firstname.lastname@example.org