Save content
Have you found this content useful? Use the button above to save it to your profile.
An image of an umbrella over a house and car| HMRC tightens up the PPI repayments process| AccountingWEB
istock_Umbrella-house-mortageg_ArLawKa AungTun

HMRC tightens up the PPI repayments process


In an effort to stop unscrupulous agents and others from exploiting the payment protection insurance (PPI) repayment process, HMRC will now require evidence of a claim before a repayment is made.

19th Jan 2024
Save content
Have you found this content useful? Use the button above to save it to your profile.

HMRC has announced changes to the process for claiming payment protection insurance (PPI) tax relief repayments, after widespread exploitation of the repayment process.

This is the latest scandal in the long history of people abusing PPI.

History of PPI

The initial offence was perpetrated by banks and other large corporates, who took advantage of their customers by selling them PPI that they did not need.

Many years down the line, those involved were finally brought to book and, according to the Money Saving Expert website, obliged to pay the staggering sum of over £38bn in compensation.

However, it gets even better as HMRC’s internal manuals help to explain.

“If a complaint about the mis-selling of PPI is upheld or the firm that sold the PPI has agreed to compensate the customer, the customer will usually be put in the position they would have been in had they not take out the PPI. This is sometimes called general redress. General redress may include:

  • a refund of PPI premiums
  • historical interest (interest paid by the customer on the PPI premium if it was added to the loan or credit card)
  • simple interest at a rate of 8% per annum which is to compensate the customer for being deprived of the money they had paid to the firm for the PPI.

“The 8% interest paid by the firm will be taxable on the customer and it must be declared to HMRC or included in a self assessment tax return.

While the 8% is taxable, recipients are entitled to claim repayment of tax deducted in respect of the refund of premiums and historical interest.

Unscrupulous agents took advantage

Spotting a chance to get rich quick, a number of “agents” started marketing products offering to assist those involved to claim the repayments. It goes without saying that many would then charge an inflated fee for taking the trouble.

So far, so good.

Unfortunately, once you get “agents” involved, some will become overly greedy and, perish the thought, claim tax repayments that were never due.

In her Process now, check later regime is open to abuse article, Amy Chin predicted that “HMRC’s policy of processing repayments and checking them later leaves taxpayers vulnerable to crooked claims agents. But will the Revenue let sleeping dogs lie?”

HMRC's PPI crackdown 

We now have the answer, since in Issue 115 of agent update, published on 20 December last year, HMRC announced “Changes to the process proclaiming Payment Protection Insurance (PPI) tax relief repayments”.

The language in this document surprises, being both combative and diplomatic in different sections.

It opens by going for the jugular

“We have identified a risk where people are trying to exploit the PPI repayment process by submitting claims which are incorrect, inflated or not properly authorised by the customer. This is unacceptable and honest taxpayers want to see us enforce the rules to create a level playing field for all.”

HMRC’s three-pronged approach is intended to be comprehensive, combining

  • stopping inaccurate payments in the first place through increased checks and improved policies and processes;
  • educating “customers” about the consequences of ineligible claims; and
  • disrupting the business model of firms that attempt to perpetrate frauds.

Widespread fraud

This all makes perfect sense and, unless you happen to be in the market for diddling money out of the Treasury by illegal means, is to be applauded as straightforward and effective. Quite why HMRC even needs to state such obvious facts might be open to question but, if it dissuades individuals from indulging in criminal activity, good luck to them.

The problem is clearly widespread, since HMRC suspended processing PPI tax relief claims on forms R40 with effect from 26 October 2023.

In future, claims will only be accepted if they are accompanied by evidence of the PPI claim in the form of either

  • the final response letter from the company making the PPI refund; or
  • a certificate from that company confirming the amount of tax deducted.

To this end, HMRC will return unprocessed claims to the original claimant or their agent demanding resubmission with the aforementioned supplementary evidence.

Tip of the iceberg?

The fact that HMRC felt the need to suspend payments, issue the statement and introduce these new rules worryingly implies that significant amounts might already have been lost to fraudulent claims, although it is always possible that this move really is just pre-emptive and proactive.

Time will tell but this could be the tip of a very large iceberg, since processing and checking in this way could have saved millions when it came to loans and other payments connected to Covid such as SEISS, while invalid claims to other assorted tax reliefs (or even dodgy PPE sales) that might be equally questionable could be reduced with the introduction of such rigorous processes in future.

Replies (5)

Please login or register to join the discussion.

By bendybod
19th Jan 2024 14:40

I had a vulnerable client got one of these letters from HMRC last week where a third party had claimed tax relief on their behalf.

Thanks (0)
By FactChecker
19th Jan 2024 17:58

What is wrong with them (HMRC)?!?

"In future, claims will only be accepted if they are accompanied by evidence of the PPI claim" ...
but, 'in future', why was this not in place right from the start?

I'm trying to think of *any* commercial organisation (even those that might be thought of as less than shining examples of competence or have since gone out of business) who operated a channel where people could 'claim' money WITHOUT any proof of entitlement.

But of course this is not just incompetence, it is HMRC incompetence (with apologies to M&S).
They have form for doing this time after time - usually with the excuse that they don't have the resources to set up the channel/process properly (until it implodes and they are forced into action).

It's not 'their' money that they've given away to fraudsters and they appear to have no sense of guilt for any innocent-if-gullible taxpayer subsequently losing out - but they can still trot out the sanctimonious claptrap of:
"This is unacceptable and honest taxpayers want to see us enforce the rules to create a level playing field for all."
No, honest taxpayers wanted to see you operate a level playing field right from the start!

Thanks (4)
Replying to FactChecker:
By richard thomas
21st Jan 2024 15:22

The main problem here is with the design of self-assessment, as well as HMRC’s a failure to get to grips with the problems caused when that 30-year old set of rules cannot cater with criminalisation of claims.

For decades the repayment claim population consisted of (1) PAYE taxpayers whose reconciliation threw up a repayment; (2) little old ladies living off their with their savings and investments; and (3) exempt bodies – pension funds, life insurance companies, charities etc.

Category (1) repayments arose either because of a inadequate code or because of a “claim” for expenses or reliefs like professional subs.

Categories (2) and (3) arose because of withholding on interest and that or tax credits on dividends.

Before SA section 42 TMA governed all claims in categories (2) and (3). It worked on the assumption that all claims would be examined by an inspector (though in practice a lower grade officer, TO or TOHG) who would give a decision on the claim (subsection (3)) and subsection (7) provided that the inspector may give effect to the claim by repayment “on proof to the satisfaction of the inspector … that any tax has been paid by deduction or otherwise”. This “check all claims now, repay later only when claim examined and proof of payment supplied” system was tempered by a practice of making provisional repayments in many cases, in cases where it as obvious that a repayment was due (pension funds and life companies especially).

SA reversed the approach. It first required claims that could be made in a return had to be so made. This change, seemingly innocuous – why have two procedures where one would do – required some subtle changes which unfortunately eluded the not terribly good or imaginative people involved in IR. They of course were focussed on getting the enquiry system working properly for investigating omissions in a “file now, check later” world. Net repayments for an SA filer would be seen as an unlikely occurrence. To cater for them, all that happened in legal terms was:

• a limitation introduced into section 9(1) TMA (self-assessment to be supplied with return). Section 9(1)(b) required “an assessment of the amount payable by him by way of income tax”, not or repayable, it will be noted, but the fullout words added that “nothing in this subsection shall enable a self-assessment to show as repayable any income tax treated as deducted or paid by virtue of … section 399(2) … or 530(1) of ITTOIA 2005” (current version). What this did was simply to prevent repayment of notional tax.

• In connection with section 9(1)(b), section 59B(1) TMA provided:

“… the difference between—

(a) the amount of income tax … contained in a person’s self-assessment …, and

(b) the aggregate of any payments on account made by him in respect of that year and any income tax which in respect of that year has been deducted at source,

shall be payable by him or (as the case may be) repayable to him.”*

The claim that occasioned the repayment can be enquired into of course and a s 28A amendment issued to seek to recover any over-repayment (or a s 29 or 30 assessment in non-enquiry cases). But otherwise there was no checking of the kind that a claim under s 42 required.

Those not within the SA system, whether in PAYE only or otherwise (little old lady R40 cases mostly) were catered for in the SA legislation by the introduction of Schedule 1A. Paragraph 2 retained (in sub-paragraph (2)) the old s 42(3) rule that “[n]o claim requiring the repayment of tax shall be made unless the claimant has documentary proof that the tax has been paid by deduction or otherwise.” It also added, very sensibly, at sub-paragraph (5) that:

“The form of claim may require—

(b) such information as is reasonably required for the purpose of determining whether and, if so, the extent to which the claim is correct and;

(bb) the delivery with the claim of such accounts, statements and documents, relating to information contained in the claim, as are reasonably required for the purpose mentioned in paragraph (b) above;”

Whether paragraph 2(5)(bb) is actually operative in any case depends on whether the Board prescribed a specific claim form for that case and whether it included the requirements of paragraph (bb) in the form. One can see that the R40 for example does not require a claimant to forward any information unless called for, whether the documents in sub-paragraph (5)(bb) or the proof of tax paid in sub-paragraph (2).

A claim for repayment once made, on the right form if necessary, must then be given effect “as soon as practicable after” it is made by discharge or repayment (paragraph 4(1)).

The only way in which this obligation to repay can be halted is where paragraph 5 (Power to enquire into claims) applies, and an officer gives notice of intention to enquire into the claim. If they do, then paragraph 4 says:

“(3) Where any such claim … is enquired into by an officer of the Board—

(a) [the obligation to repay] shall not apply until the day on which… the enquiry is completed; but

(b) the officer may at any time before that day give effect to the claim … , on a provisional basis, to such extent as he thinks fit.”

There is an obvious tension here between the “as soon as practicable” requirement to repay and the over a year that is allowed between the making of the claim and the opening of a valid enquiry. “As soon as practicable” is in my view appropriate wording to allow security checks of the kind many on this forum have experienced and retailed to us, but not to allow the failure to make a repayment for a year while HMRC makes up its mind whether to open an enquiry.

HMRC does hold the whip hand, though, as there is no ground of appeal against a failure to make a repayment “as soon as practicable”, only an ability to begin judicial review proceedings. That of course requires some sort of intervention by HMRC including a conscious decision by the Commissioners or officer to deliberately delay repayment contrary to law.

I hope this answers FactChecker’s question about “why only now”, but what I have described above does raise interesting points about what HMRC say in Agent Update 115 and relayed by Philip.

HMRC say in AU 115:

“On 26 October 2023, we suspended processing of all claims for PPI tax relief on the R40 form while we considered the best way to manage this risk. We have now restarted processing PPI tax relief repayments claims and have changed the requirements for submitting a claim.

We now [20 December] require evidence of a PPI claim before we progress a claim for tax repayment.

Claims can continue to be made using the existing R40 form with the supplementary evidence attached. The evidence required can be either:

• the final response letter from the company that made the PPI payment to the taxpayer

• a certificate from the company that refunded the taxpayer to confirm the amount of tax deducted from the refund.

Any unprocessed claims will be returned to the original claimant, or their agent, asking for them to be resubmitted with supplementary evidence. We have started writing to all claimants, including agents who made claims, to inform them of this requirement.”

First on what legal basis did HMRC suspend processing? It’s not a matter of practicality.

Second, what right have they to require inclusion of the evidence, failing which require the claim to be re-submitted and won’t process the claim already made? Paragraph 2(5)(bb) Schedule 1A permits the “form of claim” to require documents such as proof of a PPI payout. The R40 specifically does not require the documents unless called for, but calling for is to be done by opening an enquiry and issuing a closure notice denying the claim in the absence of co-operation. There is no middle way if the claim is in time and conforms with the requirements when made.

Let me make it clear that I do not doubt that dodgy claims should be investigated, but I agree that thew current situation is entirely one of HMRC (or Inland Revenue’s) own making in designing the self-assessment system and Schedule 1A. I also prefer the rule of law to administrative fiat.

*Interestingly the time by which a repayment arising from a self-assessment is to be made is the same as for tax payable, 31 January after the tax year in most cases. Yet HMRC often make repayments before then as well as not making them after then for no good reason.

Thanks (4)
Replying to richard thomas:
By FactChecker
22nd Jan 2024 14:19

Most illuminating, Richard, and faintly comforting to follow the route by which we end up where we are (which, with all the missed opportunities along the way, is at least based on identifiable logic rather than the apparent randomness that I'd perceived)!

So really just another example of when aging rules have had more & more 'sticky-backed plastic' applied in an attempt to hold them together, instead of the re-write that would bring them into the world occupied by current taxpayers.

BTW do all these examples that you seem to uncover with alarming regularity (of HMRC exceeding their rights) go somewhere to be reviewed/investigated?

[And at a tongue-in-cheek level, careful with all those references to "little old ladies"- some of whom can be quite fierce and sharp as a razor. My aunt, aged 93, has just set off on a 4-country safari across southern/eastern Africa!]

Thanks (2)
By mandi b
31st Jan 2024 11:34

PEASE HELP..... HMRC Have my ppi tax refund but will not pay me until i have some proof of account in question. I no longer have any account info as i no longer use Barclays.

I need a copy of my ppi tax settlement or final letter.
I have phoned the branch and been into branch but they no longer have a PPI team, and they cant find an account in my name. i have no record of account no etc.
i really need this money that hmrc are keeping. PLEASE ADVISE.

Thanks (0)