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PPI compensation interest

PPI compensation interest

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Client has asked if HMRC are given details of interest paid to claimants (he hasn't said as much but the implication is that he would prefer not to disclose). Setting aside my ML obligations, my intended vague response will be "you will be surprised at the information powers that HMRC have". But it would be nice if I could tell him, truthfully, that HMRC will have details of all such info to match to taxpayer records. Given the number of claims, particularly involving non-SA taxpayers, I don't see how HMRC can realistically monitor this, but all comments welcome.

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By ACDWebb
22nd Jan 2014 22:46

Presumably there could well be

reporting requirements if it's taxed - HERE

Back in the dim distant past when I was over there we used to get untaxed income reports as well, so I should have thought you could fairly safely say the probability was quite high without needing to cross your fingers behind your back.

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By mhtax
23rd Jan 2014 06:13

Can be significant too

First time coming across one last week - payment received £6k, tax deducted around £350. He had been told not to worry as his tax had already been paid but it's a good job I persisted.

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Replying to DJKL:
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By rjoconnor81
23rd Jan 2014 10:15

PPI

mhtax wrote:

First time coming across one last week - payment received £6k, tax deducted around £350. He had been told not to worry as his tax had already been paid but it's a good job I persisted.

 

Only the interest is taxable, the repayment of the PPI and related interest isn't.  You need to check the breakdown of the £6k, seems very high just for the interest element (I might wrong so apologies in advance if I am).

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Replying to Portia Nina Levin:
By petersaxton
24th Jan 2014 09:57

What interest?

rjoconnor81 wrote:

mhtax wrote:

First time coming across one last week - payment received £6k, tax deducted around £350. He had been told not to worry as his tax had already been paid but it's a good job I persisted.

Only the interest is taxable, the repayment of the PPI and related interest isn't.  You need to check the breakdown of the £6k, seems very high just for the interest element (I might wrong so apologies in advance if I am).

What interest is unrelated and what interest is "related"?

I thought there was only related interest and it is taxable!

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By mikeyban
23rd Jan 2014 08:00

Agree one hundred percent in most cases it's taxable and should be declared... Only comment is that if it is not and the interest is £300 .... Tax therefore is £60 (basic rate taxpayer) are HMRC really going to attempt to recover this?

By not declaring I am referring to a genuine mistake and not a deliberate non disclosure!

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By petersaxton
23rd Jan 2014 08:13

Best idea

Say you don't know but you could ask HMRC on behalf of client!

I would also say knowing what information HMRC receive should make no difference to what is put on the tax return which should be completed properly.

If somebody didn't change their attitude quickly I would get rid of them.

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By rjoconnor81
23rd Jan 2014 10:13

Yes, HMRC are given details of all interest paid through normal bank accounts, so I imagine that they will also be told about the interest on PPI repayments.  Most of the PPI interest is paid gross, so HMRC will be interested.  I know HMRC receive this information as we have had a couple of aspect enquiries into interest declared on returns (albeit only on 40% tax payers).  

 

With regards to will HMRC be interested in collecting £60 of tax, probably not if you are not within the self-assessment system, but if you are and they get to charge interest and penalties then why not.

 

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Replying to DJKL:
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By mikeyban
24th Jan 2014 08:23

Really?

rjoconnor81 wrote:

Yes, HMRC are given details of all interest paid through normal bank accounts, so I imagine that they will also be told about the interest on PPI repayments.  Most of the PPI interest is paid gross, so HMRC will be interested.  I know HMRC receive this information as we have had a couple of aspect enquiries into interest declared on returns (albeit only on 40% tax payers).  

 

With regards to will HMRC be interested in collecting £60 of tax, probably not if you are not within the self-assessment system, but if you are and they get to charge interest and penalties then why not.

 

Really? When have you ever seen an example of HMRC opening an enquiry for £60?

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By vince8
23rd Jan 2014 11:51

Depends on number of years

I have just seen one where they paid 8% simple interest of nearly £8k on just over £25k compensation. In the example above I assume the taxable interest was around £1,750.

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Stepurhan
By stepurhan
24th Jan 2014 08:50

Licence to fish

If there is £60 tax they know has arisen due to income not being put on a return, you are giving HMRC licence to scrutinise the whole return. Are you really confident you could fend off a full enquiry when they have your client bang to rights for omitting taxable income. You can accuse them, with some justification, of going on a fishing expedition if they start probing into other things. It's not a strong position to start from though.

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Stepurhan
By stepurhan
24th Jan 2014 09:15

Excuse for full enquiry

Yes, knowing something was wrong and just looking into that would be an aspect enquiry. If HMRC said, "We know this one thing is wrong, and this leads us to suspect there will be other things wrong" as justification for opening a full enquiry, they are on strong ground. I'd still try to resist it but you are giving them a heck of a way in.

Even if they find nothing else, it's a lot of hassle for you and the client over a relatively small amount of tax.

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Stepurhan
By stepurhan
24th Jan 2014 10:11

Interest charged

Since PPI was often added to loans at the outset, additional loan interest would often end up added as well. The related interest is that additional amount that would not have been charged if the loan hadn't been increased by the PPI premium at the outset. It is a refund of expense in the same way as the premiums themselves.

This would not normally be taxable, as simply a refund of interest paid. It may be effectively taxable where it is a business loan with tax relief obtained for the interest charged. This would be treated the same as any other business expense refund.

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By kellyanstee
24th Jan 2014 13:57

PPI Claims - blog post

I had predicted this would happen on my blog June 2012  http://www.taxswag.co.uk/ppiclaims/ @taxswag

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By The Black Knight
24th Jan 2014 17:32

HMRC Amnesty

HMRC will be saving that one for a future amnesty.

This interest is a nice compensation for being Dim witted in the first place. Wish I'd been stupid at the time too!

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By mikeyban
25th Jan 2014 09:02

HMRC are a business and there is a cost to opening an enquiry.... Hence now when you get an enquiry letter you know now you have a problem.....

The cost in even opening an aspect enquiry I can assure you is a lot more than £60...

In my experience this will never happen unless the sum is material which in my experience is about £300

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By petersaxton
25th Jan 2014 10:45

Understood

But isn't the argument that somebody who will try to fiddle tax of £60 also be the same person who will fiddle tax for £'000's.

Anybody who mentions fiddling tax gets put straight immediately. It's not something I want to get involved in.

 

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By Ange
25th Jan 2014 22:32

Had one recently

where the payer detailed the amount that was taxable and that they had complied with the requirement to report this to HMRC (think it was Nationwide) no tax was deducted by the payer.

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