PPI Claims... the dark side


Some people have great hands at poker. Others seem to have the nack for picking the winning lottery numbers. My brother for instance, would always find cash on the floor. I'm not sure if it was because he was shorter than me as a child, so he clocked it quicker, but the bottom line is, we all love a bit of tax free income.


In fact just lately, there's this buzz about people who are claiming their PPI refunds from the banks and loan sharks, I mean companies. People so excited at the thrill of a 'free' cheque coming their way, that as soon as the long awaited letter opens, they're straight down the bank to deposit it. I mean, why delay? That cheque deposit is most likely your familys next holiday sorted. That cheque made payable to 'YOU' for "X", is for YOU to have back, it was always your money.

If you think about it, if that cheque for X had been in your bank account already, you could have been earning interest from the bank! So the bank have kindly refunded you this interest due to you, included in your PPI refund. That's very nice of the bank isn't it? To be honest, it wouldn't occur to some people that they're actually entitled to this interest part of the refund, so yes it is nice of the bank to accept that this is also due back to their customer. But most importantly, without the customer having to request it.

From an advisors point of view, I must point out that only Natwest/RBS are the ONLY banks that are deducting the TAX due on that interest, BEFORE you receive your cheque for your PPI refund. ANY bank interest that you received (other than ISA's), from the bank's already have the tax deducted. So for every £1 you receive from your bank, you have already had 20p deducted for tax. ALL other banks not listed above are paying the £1.20 instead of £1, therefore leading to an under payment of tax.

Unfortunately my opinion, is that banks, yet again have been irresponsible in dealing with these tax deductions before they release the PPI refunds to the client. A lot of people, intentionally, or not intentionally, will not pay over the tax due on ONLY the interest element part of the refund.

Knowing how HMRC work, I can also predict that (when they are ready), they will obtain a list of payees in respect of PPI refunds and ear mark them for penalisation. No doubt, the bank's have covered their rears, mentioning that the interest part is subject to taxation - which will unfortunately leave the refund customer in a position with HMRC.

For the customer, it's agrivation with lack of information and resources trying to pay the tax over to HMRC. Worst case scenario - having to pay an accountant to deal with it for them.

Going back to my point about HMRC in recent years, they have heavily increased their penalties for withholding information ie: not disclosing information in a timely manner. They don't seem to have aggressive strategies to recover this underpayment of tax at the moment, but when they 'wake up', they will come in like a ton of bricks. Imposing penalties, interest / surcharges - all for receiving your OWN money back...!!

As this part of the PPI refund claims seems not to be publicised by the Banks and HMRC (for the time being), taxswag thought we'd give you a heads up.... Saving you some money in the process.