If you received a Payment Protection Insurance (PPI) payout before 6th April 2021, you might be able to reclaim the tax on it.
PPI Complaints
PPI is an insurance policy sold with credit agreements which is designed to cover your repayments for a set period of time if you are no longer able to work.
PPI was often mis-sold to customers in the past, with the Financial Conduct Authority (FCA) reporting that it was sold to many consumers who didn’t need it, with the PPI-seller often taking unfair amounts of commission for the sale. This led to the FCA setting a deadline of 29th August 2019 for making PPI complaints to the firm which sold you PPI to get some of your money back.
Can I Still Submit a Complaint?
The deadline for submitting traditional PPI mis-selling complaints has passed, but there are exceptions for certain claims which may still be possible. You can find out more about the circumstances under which you can still complain on the FCA’s website and look at whether you’re eligible to claim compensation on the Financial Services Compensation Scheme’s (FSCS) website.
Reclaiming Tax
If you did complain and get a PPI payout, you could be owed tax. PPI payouts consist of:
- A refund of the PPI premiums paid
- Interest on any additional loans which may have been added on top of your existing ones to fund your PPI payments
- The statutory interest on the total above at 8% for each year since you got the PPI (not compounded)
Of these, it is only the statutory interest which is liable for tax. Since 2016, the personal savings allowance means most individuals can earn up to £1,000 a year in interest before tax is due (higher rate taxpayers only get £500 in personal savings allowance and top rate taxpayers don’t get any). This allowance also applies to the 8% statutory interest on your PPI payout. However, most PPI payouts have been taxed at the basic rate of 20% without taking this personal savings allowance into account.
If you earned below the personal allowance (£12,570) the year you received your PPI payout, you can claim all of the tax paid on this back unless the statutory interest pushes your earnings over the personal allowance threshold. For those earning above this personal allowance, as aforementioned, most taxpayers also get a personal savings allowance, meaning you can make a claim for a tax refund.
HMRC only allow you to reclaim tax going back four tax years, meaning the furthest you can make a claim is the 2021/22 tax year. Therefore, if you received a PPI payout before 6th April 2021, you can no longer reclaim your tax on this. If you believe you are owed tax back and haven’t yet reclaimed it, you can submit an R40 form to HMRC.