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News

Customers Affected by Missold PPI Could be “Underpaying” Tax

Customers who have been affected by the recent scandal surrounding mis-sold payment protection insurance could have, inadvertently, been underpaying tax after receiving their repayments. HMRC has said that no tax is levied on the compensation that those affected have received, but it is on any additional interest paid.

In 2011, banks paid out just under £2bn to those affected by mis-sold PPI, with another £5bn expected to be paid out before it could be said that the problems have been resolved. The insurance policy is meant to cover the loan repayments if the customer were to fall ill, die or lose their jobs, ensuring that the bank isn’t attempting to claim money off people who are unable to keep up with repayments through no fault of their own. However, the policy became nationally controversial after many were sold without the customer’s knowledge as part of loans or mortgages.

The national average compensation payout is around the £3,000 mark that includes a capital sum and interest that would have been accrued if the individual customer had never made the payments, which is taxable. Some companies would have already deducted the tax, but others may not, meaning that many customers may be forced to pay tax that they were unaware of which may land them in trouble with HMRC, prompting calls for a change to the law.

Chas Roy-Chowdhury from the ACCA accountancy body said “There is huge scope for people to be underpaying tax through no fault of their own. The Treasury should not benefit from a tax windfall owing to compensation payments. Instead, it should change the law to cancel any tax charged relating to PPI compensation.”

It remains to be seen what will happen with this call but what is certain is that the controversial policy will remain in the news for several years to come one way or another, with thousands of customers eligible to make a PPI claim who have not done so as yet.

Posted by Chris White on 18 May 2012

Other News

What Is PPI?

19 Aug 2011