HMRC tightens up the PPI repayments processby
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.
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.
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.