Wednesday, May 30, 2012
Victims of Payment Protection Insurance mis-selling to pay tax on recompense payments
By James McLeish
It has emerged that countless consumers, due to get compensation after being mis-sold payment protection insurance, will need to pay out tax for their payments.
It will be charged on a typical 8 % in lost interest given to people successful in PPI claims in addition to reimbursed PPI repayments and may signify, typically 50 per person will be paid out in tax, though those acquiring bigger than usual PPI payouts will have to fork out considerably more which will lead to around 350m in total being given back to the HMRC.
A high court decision a few months ago led to British banks being required to re-open a huge number of mis-selling claims relating to PPI, which had been a policy marketed at the point of sale of personal loans, credit cards and other types of debt and which had been sold to people on the basis that they would meet the repayments in cases where they had been made unemployed or fell ill and were unable to work.
It later on surfaced that a great many of the people who took out PPI had been mis-sold it because they would not be entitled to a payment because of exceptions in the small print and there were lots who were merely not aware they had been subscribed to PPI, having no understanding of it.
The FSA had introduced rules to stop the mis-selling of PPI but the financial institutions complained that these rules were not fair since they were to be implemented retrospectively and the British Bankers' Association (BBA) launched a high court challenge against the FSA as well as the Financial Ombudsman but lost the subsequent lawsuit.
Most of the banking institutions had put PPI complaints on hold until the high court ruling, but ever since then compensation has been released and it's estimated that banking institutions will need to pay a total payments of 4.5bn, comprised of 3.2bn for looking at previous PPI sales and 1.3bn for brand new complaints received.
It's thought that around 6.4m people had been mis-sold PPI from 2005 onwards and the average compensation payout is expected to be about 1,000 which will contain about 240 in interest. If that is taxed at the basic rate of 20% the government will get about 48 but it will receive more for those cases where higher rates of tax are paid. For example, some payouts have been up to 16,000 which, if paid to a higher rate taxpayer, will lead to over 1,500 getting paid to the HMRC.
Consumer groups have responded angrily to this reports with some people urging the banks to pay the bill. Marc Gander from the Consumer Action Group says it is an outrage that banks have been selling overdrafts, personal loans and credit card loans at interest rates as high as 29% yet, in terms of having to pay compensation to customers, they are charged at only 8%. He was quoted as saying that they are "taking the mickey" out of both their customers and the financial authorities.
HMRC, in a statement, stressed that no tax is normally due on a repayment portion of compensation acquired by people who had been mis-sold PPI and that nobody ought to be worse off as, even when they'd not bought the PPI policy but had kept the money in an interest-bearing account, interest would have been taxable.
It will be charged on a typical 8 % in lost interest given to people successful in PPI claims in addition to reimbursed PPI repayments and may signify, typically 50 per person will be paid out in tax, though those acquiring bigger than usual PPI payouts will have to fork out considerably more which will lead to around 350m in total being given back to the HMRC.
A high court decision a few months ago led to British banks being required to re-open a huge number of mis-selling claims relating to PPI, which had been a policy marketed at the point of sale of personal loans, credit cards and other types of debt and which had been sold to people on the basis that they would meet the repayments in cases where they had been made unemployed or fell ill and were unable to work.
It later on surfaced that a great many of the people who took out PPI had been mis-sold it because they would not be entitled to a payment because of exceptions in the small print and there were lots who were merely not aware they had been subscribed to PPI, having no understanding of it.
The FSA had introduced rules to stop the mis-selling of PPI but the financial institutions complained that these rules were not fair since they were to be implemented retrospectively and the British Bankers' Association (BBA) launched a high court challenge against the FSA as well as the Financial Ombudsman but lost the subsequent lawsuit.
Most of the banking institutions had put PPI complaints on hold until the high court ruling, but ever since then compensation has been released and it's estimated that banking institutions will need to pay a total payments of 4.5bn, comprised of 3.2bn for looking at previous PPI sales and 1.3bn for brand new complaints received.
It's thought that around 6.4m people had been mis-sold PPI from 2005 onwards and the average compensation payout is expected to be about 1,000 which will contain about 240 in interest. If that is taxed at the basic rate of 20% the government will get about 48 but it will receive more for those cases where higher rates of tax are paid. For example, some payouts have been up to 16,000 which, if paid to a higher rate taxpayer, will lead to over 1,500 getting paid to the HMRC.
Consumer groups have responded angrily to this reports with some people urging the banks to pay the bill. Marc Gander from the Consumer Action Group says it is an outrage that banks have been selling overdrafts, personal loans and credit card loans at interest rates as high as 29% yet, in terms of having to pay compensation to customers, they are charged at only 8%. He was quoted as saying that they are "taking the mickey" out of both their customers and the financial authorities.
HMRC, in a statement, stressed that no tax is normally due on a repayment portion of compensation acquired by people who had been mis-sold PPI and that nobody ought to be worse off as, even when they'd not bought the PPI policy but had kept the money in an interest-bearing account, interest would have been taxable.
About the Author:
Thousands of people may make PPI claims online for compensation for mis-sold policies. We can assist you to claim back what's rightfully yours. If you would like to make a HFC PPI claims contact us through our on-line form then one of our specialist advisors will call you back.
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