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Millions of people are facing an unexpected tax bill on their Payment Protection Insurance (PPI) claims payouts, the BBC has learned. The banking industry has set aside £6bn to pay for the misselling of PPI. Customers were awarded compensation plus interest of 8% by the Financial Services Authority on the money they originally spent on PPI. This interest will be subject to tax - earning the government tens of millions of pounds.
A spokesman for HM Revenue & Customs told Radio 4's Money Box programme: "No tax is generally due on the repayment element of compensation paid to those missold PPI. However, the additional interest is taxable - in line with other compensation claims." They said that "Nobody should be worse off, as had the customer not purchased PPI, but kept that money in an interest-bearing account, the interest received would have been taxable...Read more here---> BBC News - Taxman to make money from Payment Protection Insurance
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Victims of the mis-selling of payment protection insurance (PPI) could "inadvertently" be underpaying tax after receiving compensation payments. HM Revenue and Customs (HMRC) has confirmed that no tax is levied on the compensation sum victims receive, but it is on any additional interest paid. Chas Roy-Chowdhury, of the ACCA, called on the government to withdraw this tax. Last year, banks paid out £1.9bn to the victims of mis-sold PPI. An estimated £5bn is still expected to be paid out. PPI is supposed to cover borrowers' loan repayments if they fall ill, die or lose their jobs. It became highly controversial after the policies were sold, often without the customer's knowledge, along with loans and mortgages. Law change call
The average payout in compensation is £3,000. This includes a capital sum - based on the PPI premiums paid - and interest that would have accrued if the individual still had never made those payments. Only the latter is taxable. The interest on this may or may not have had tax already deducted, depending on the type of company making payment of the interest, HMRC said. Mr Roy-Chowdhury, head of taxation at the ACCA accountancy body, said: "There is huge scope for people to be underpaying tax inadvertently." He said that the Treasury should not benefit from a tax windfall owing to the compensation payments, but should instead change the law in order to cancel any tax charged relating to PPI compensation..........Read more here: PPI compensation prompts tax concerns