PPI Taxation Timebomb?
Welcome to 2013
Firstly welcome to my first blog posting for 2013. New year, new resolution .. more blogs. Well, we shall see. If you have any ideas on subjects or topics that you’d like me to cover in a blog, please drop me an email to firstname.lastname@example.org
Payment Protection Insurance (PPI) and the potential tax timebomb
I’m not setting out to add a service to new or existing clients as reclaiming PPI is something most people should be able to manage using the excellent guides provided on the internet – particularly those by Martin Lewis at MoneySavingExpert.
If you are or have been successful in reclaiming miss-sold PPI the funds you receive should be broken down into different elements:
a) The actual PPI premiums you have paid
b) Any interest that you have paid on those premiums (e.g. credit card, overdraft or loan interest)
c) A refund of any default charges that may have been incurred.
d) Interest on the premiums
Depending on the time and the value of the PPI premiums some of these figures could be quite significant.
The letters I have seen recently are quite lengthy. Let’s face it, most people are just interested in seeing what the final figure is aren’t they? Why plough through several pages of gobbledegook? Well, the letters do actually advise you that the interest on the premiums part of the compensation (i.e. item d on the list above) is actually paid gross and is subject to UK taxation!
So if you have been successful in recovering miss-sold PPI you should tell your hard-pressed accountant* now that you have received this so that he or she can make the appropriate entries on your tax return for 2011/12 – or indeed amend a previous year’s return if necessary.
I am wondering if this is a potential Enquiry bombshell awaiting many taxpayers over the coming years? How many taxpayers (or accountants for that matter) have ensured that this interest element is shown on tax returns for 2010/11 and onwards? If HMRC hasn’t already obtained a list of taxpayers to whom PPI has been repaid I wonder how long it will be before they request this information? Don’t be caught by a painful Enquiry over something so simple – tell your accountant now!
If you need any help with this matter or have any self-assessment or tax return problems, please do not hesitate to contact me.
*why is your accountant hard-pressed? Well, right now we are in the middle of January and the final filing deadline for self-assessment is 31st January 2013 so he or she is working hard to ensure that all his or her clients’ tax returns are filed on time.