PPI mis-selling has resulted in compensation payouts to victims
Victims of the banks mis-selling of payment protection insurance (PPI) may “inadvertently” be underpaying tax after receiving compensation payments.
HM Revenue and Customs (HMRC) has confirmed that no tax is payable on the compensation victims receive, but tax is due on any additional interest paid.
In 2011-2012, banks paid out £1.9bn to the victims of mis-sold payment protection insurance (PPI). An additional £5bn may be paid out in this current financial year.
Payment protection insurance (PPI) is supposed to cover borrowers’ loan repayments if they lose their jobs, fall ill, or die. It has become highly controversial after the policies were sold, often without the customer’s knowledge, along with loans and mortgages, or were mis-sold to customers who would be unable to claim.
The average payout in compensation is £3,000. This includes a capital sum – based on the payment protection insurance (PPI) premiums paid – and interest that would have accrued if the individual still had paid over these payments.
It is this interest that is taxable. Some companies are paying this over after deduction of tax, others are paying gross.
The tax authority has a helpline for anyone unsure of how to declare this income 08453000627.