As some of you will know, according to several creditors issuing PPI compensation, any interest they pay out is being classed by HMRC as taxable income.
Some IP's are actually letting the client have the interest element and leaving it to them to account to HMRC for the tax.
Mine has taken advice and says that, as the interest isn't being paid to me there will be no tax to pay (which I am not exactly convinced of -- however, I will ensure that any tax liability IS met by my IP.
What, if anything, have others been told and have other experts taken any advice ?
My opinions are merely that .. opinions based on experience. Always seek professional advice.
IVA Completed 23rd July 2013 .... C.C. 10th January 2014
I didn't know anything about this Foggy, do you have a link to reference source?, I guess a lot depends if the compensation payment actually breaks down which is compensation and which is interest?
If the tax due on the interest element of the PPI payout is not deducted as source then it is the responsibility of the individual to pay HMRC either through a one off payment or adjustment of your tax code. The organisation issuing the PPI reclaim is doing so to you - the policyholder - and this is only being picked up as an assett by the IP either from you or your appointed agent. It is not the IPs claim and the tax is not their responsibility unless you have an arrangement that they deal with the payment on your behalf.
But I would advise you get a written assurance from your IP that any tax liability will be met by them.
FROM THE HMRC WEBSITE
Do I need to report PPI Interest received to HMRC or claim Income Tax back?
Your final tax position will depend on your individual circumstances but in general the position will be as follows.
If you are a non-taxpayer and have had tax deducted from the interest, then you may be able to make a claim to have the tax repaid to you by HMRC. To find out more information on claiming Income Tax back follow the link ‘Tax refunds and reclaiming tax’ in the ‘More useful links’ section below.
If you are a basic rate taxpayer and tax has been deducted from the interest then you need do nothing further unless you need to complete a tax return. If you need to complete a tax return you should enter the amounts in the appropriate section.
If you are a higher rate taxpayer who has received interest with or without tax deducted, or a basic rate taxpayer who has received interest without deduction of tax, then the interest should be reported to HMRC. You should include the amount on your tax return or by contacting HMRC to report this new source of income. Follow the link below to report changes to your income to HMRC.
I believe that the debtor does need to properly account for income tax on the interest element, and therefor the IP needs to ensure that sufficient funds are held to meet this liability once tax returns are submitted to HMRC. I am taking advice on this issue - yet another burden for busy IPs to get to grips with, but important to get it right so we don't leave our clients with a tax liability they cannot repay.
Our advice has been that the tax is the responsibility of the client so we are sending the tax element to our clients for them to resolve. We check if they are 20% or 40% taxpayers and reimburse the percentage of interest paid accordingly.
Hi deeps -- it's 8% of the compensation ... simple interest. The compensation is what you had paid over in premiums, and the interest is to "make up" fot the loss of that money over time.
My opinions are merely that .. opinions based on experience. Always seek professional advice.
IVA Completed 23rd July 2013 .... C.C. 10th January 2014
Hi, I paid over £14k to my IP from PPI refunds I did myself, they have said that if I give them the letters with the breakdown of the Interest on they will enquire and pay any tax on my behalf from the payment I have transferred to them, OR I could do it myself if I wanted.
Recieved a letter from Equity in finance saying a offer has been made for £11k in settlement of my PPI claim and for me to sign and return to them. They didn't enclosed the breakdown but i received a separate letter from bank showing breakdown. This gross interest less 20% tax that the bank deducted already leaving a net interest. Does this mean this amount should go to me or total refund and interest all to IVA.
If the bank have already deducted tax for you, and that tax has been accounted for at the correct rate, you can safely hand over the full sum payable to your IP for the benefit of creditors.
