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PPI refund query triggers SA concern

24th Jan 2013
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Accountants are in danger of overlooking their clients’ payment protection insurance (PPI) refunds during self assessment season, and may have to file a return for the year in question.

Tax expert Rebecca Benneyworth was on hand to answer an interesting PPI query in Sage’s self assessment clinic, which could be more widespread across the profession.

Here is the question:

“I have a client whose wife received a PPI refund made up of premium refunds and interest. The letter says that the interest has not been taxed. Her only other income is earned income taxed under PAYE. Will she have to register for self assessment, obtain a UTR and file a return for the year in question? I know other people who have received a refund without notification of the split between premium and interest. Is this something that we will have to start asking our clients for?”

Benneyworth said the query was particularly topical as a lot of firms will have clients with PPI refunds in 2011-12 and 2012-13.

She explained that if the interest is paid by a bank or building society, then they are exempt from deducting tax on the interest, however other bodies will have to deduct tax from it.

“The recipient should be notified what is in the payment,” Benneyworth said. “And for some the interest will be a very substantial sum indeed. If the interest is untaxed, or if taxed at source but received by a higher or additional rate taxpayer that will have to be declared to HMRC - on a tax return I am afraid.”

She added that if it was received in 2011-12 the date for notifying HMRC was 5 October 2012, and therefore you will have a failure to notify if the recipient is not already in self assessment.

This might also mean that the client will not have a UTR.

“You'll need to apply for one and wait for it to come before filing the return (ideally online). Your client should pay the tax by 31 January 2013 to minimise penalties. They can do this by paying Bradford by cheque with their NI number and name and address on the reverse of the cheque, with a letter of explanation. The payment will go into suspense and you'll have to get them to link it to the return after you get a UTR.”

Benneyworth added that the current turnaround time on a UTR is around five weeks.

She is also providing a practical point for the ICAEW Tax Faculty Taxline magazine on the same topic.

Take a look at the Sage online self assessment surgery for more SA-related queries.

Replies (14)

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By Mikeparr
24th Jan 2013 21:08

PPI interest

Having notified HMRC recently of the amount of interest received gross in 2011/12 in respect of a PAYE  taxpayer they agreed to include the underpayment in the notice of coding for 2013/14

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By tonycourt
25th Jan 2013 10:40

Is an SA return really necessary?

By following HMRC's own, albeit illogical, criteria of when someone is required to be in SA I think most of those with interest from PPI refunds would, as Mike indicated, be able to simply notify the interest details by phone or letter and remain outside of SA.

Of course there is the problem of s.7 TMA - failure to notify - but paying the tax as Rebecca suggests should resolve this.

And, I would say, if you've left it this late you deserve what you get, but perhaps that's a little harsh. 

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By fpdbookkeeping
28th Jan 2013 11:29

Doesn't help that HMRC's system for registering for a UTR and then registering as their agent is ridiculously slow.

However, for something like this, would it not be more practical for legislation to require banks to deduct the tax at source and keep such people out of self assessment? Would be a lot easier.

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Replying to James Green:
By tonycourt
28th Jan 2013 11:57

Tax at source

Good point, but tax at source is taken depending on whther or not the payer of the interest is, under current rules, obliged to withold it . To make it universal would have required new and potentially tricky to enforce legislation. 

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Derek French
By derek44
28th Jan 2013 11:31

PPI Payments

My wife recently claimed for, then received, PPI repayments plus interest that came to £2,200. She is on PAYE. It hasn't even remotely occurred to either of us that anything needed declaring and I suspect that is the case with the vast majority of those receiving PPI repayments. I'll speak with our own accountant about it. Has any of the official accreditation bodies (ICAEW, ACCA) made any announcements or provided any guidance on this?

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
28th Jan 2013 12:00

HI derek

I'm doing a point for the TaxLine on the subject. In fact lots of people have had considerably more than the figures you have quoted - I know someone who has received over £30,000 and a large chunk of that is interest (in respect of payments re a small business loan). It is so easy to overlook this!

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By enanen
28th Jan 2013 12:03

Some Reservations

Most PPI premiums, if not all were added to loans to bank customers and interest charged on the loan and premium together in one repayment. Most interest being claimed back is a refund of debit interest on loans and is not taxable, as it is a refund of debit interest wrongly suffered on the loan element relating to the PPI premium. It is important that before you get your client to report interest received that you ensure it is not simply a refund of debit interest. You require the calculation and basis of claim to assess this.

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Replying to 0098087:
By Jimess
28th Jan 2013 12:59

Re: enan

I appreciate what you are saying, but of the loan is linked to a business then you need to consider whether the interest originally paid was claimed in earlier years returns and whether a credit adjustment should be made in the accounts in the year of repayment.  One scenario I have seen is the refund of the original loan interest, a compensation payment, plus interest taxed at source on the amount repayable due to the bank not meeting the settlement date, there are lots of things going on in PPI claims so each scenario needs consideration. 

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By Jimess
28th Jan 2013 16:55


I have a farming client who took out a loan with a very well known bank for a new tractor for his farm, certainly not a cheap peice of machinery.  PPI was sold to my client along with the loan - it was very well documented in the paperwork.  His PPI claim is what I had in mind in my reply to you.  I don't doubt what you are trying to say, but in my clients case the PPI was correctly charged to the business as it was shown as a separate item on the tractor loan documents. The loan documents stated the purpose of the loan was to purchase the tractor. He is a sole trader so whether the bank set it up as a personal loan is another matter indeed. 

I have also seen instances where sole trader clients have obtained loans from banks/financial institutions to purchase vans for their businesses and again PPI has been shown on the loan documents so I don't think it is just one particular instance. 

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By macdougall
28th Jan 2013 16:57

PPI for business

Well, there's a thing.

When you say "business"

"As a banker who used to sell this stuff in the eighties for four banks there were no PPI products for businesses or business related loans as they were simply personal "

I was made to buy PPI for a business loan from NatWest in 1993.

Do you mean that there was no PPI for incorporated businesses?

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Replying to lionofludesch:
By enanen
29th Jan 2013 13:11

i'd love to see the paperwork for it.

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By tonyglasbey
29th Jan 2013 10:22

PPI claim - business use

I received a partial refund of PPI on a loan I took out 15 years ago for a car with en element of private use. I am now pursuing the balance of PPI through the Ombudsmsn.

I originally charged the PPI along with the loan interest to P&L, and adjusted it for private use of the car. The refund thus far is not income as it does not exceed the original PPI charge. It is a credit to an earlier expense, and for tax purposes only the business element will fall to tax.

Should my further claim succeed then it will exceed the base PPI claim by interest awarded. At this stage the amount I receive up to the full amount of the PPI  should be similarly treated, and anything I receive over and above this will be interest paid gross, and should properly be treated as untaxed interest.

Not as complicated as it might seem: the PPI element of my claim is being treated as a  reversal of the original treatment of the expense. The interest I might receive is being treated as exactly what it is - untaxed interest,

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By mikewhit
29th Jan 2013 12:51


If the repayment is meant to put the customer back in the position had he not taken out the PPI insurance, then there must be an element of recompense for inflation. Surely some of the 'interest' element would be inflation-adjustment ?

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By aitch35
30th Jan 2013 09:36

PPI Interest

My understanding is that the interest received is in two parts.

 Recompense for interest charged on the PPI which would not be taxable and Statutory Interest at, I understand 8%, which would be taxable


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