Fact-file of Payment Protection Insurance

  • Approximately, 45 million policies have been sold wrongly to people
  • £27.4 billion has already been repaid in compensation
  • Lenders, banks, financial institutions and building societies have been heavily affected
  • The last date to make a claim is 29th August, 2019

According to the terms of a Payment Protection Insurance (PPI) policy, individuals who invest in one are provided with cover for repayments. This is in case the borrower becomes sick, loses their job or are unable to work.

While the intention behind PPI was not necessarily bad, the level of mis-selling that occurred was starting to hit the news. It reported that many financial institutions mis-sold PPI policies to housewives and self-employed people who were unable to apply for a claim.

As consumer groups began to get involved and the PPI fiasco came to light, many customers started realising that they could have been mis-sold PPI. This is when people started applying for PPI claims. The Financial Conduct Authority (FCA) has been the driving force behind this initiative. They’ve been forcing banks to play ball and settle PPI claims fairly, which led to claimants receiving refunds for their policies.

Millions of consumers have been mis-sold PPI by several banks in the United Kingdom. According to the FCA, “A total of £398m was paid in November 2017 to customers who complained about the way they were sold payment protection insurance (PPI). This takes the amount paid since January 2011 to £29.2bn.”

Knowing that, the next big question will have started churning in people’s minds. This PPI compensation amount...would they be liable to pay tax for it?

Is PPI refund taxable?

Yes, PPI refund is taxable but the tax is calculated on the interest amount.

For example, if an average refund amount that an individual obtains is £1000, of which £240 constitutes the compensatory interest paid by banks. Now, the government taxes this interest at a basic 20% rate. Of the £240, this means that £48 is owed by the claimant in tax.

There have been many such cases in the history of mis-sold PPI and the most basic ones include:

  • An individual has received £16,000 as compensation of which £1,536 goes to the treasury.
  • Individuals who have a huge PPI compensation amount because of overdrafts, personal loans and credit card loans for several years are charged with 15-29% interest rates.

Your compensation is charged at an interest of 8% while your tax is deducted from the interest amount based on which category you fall in the tax band. For instance, if you are a basic taxpayer you owe 20%. And if you belong to a higher tax band, the rate is about 40% or 50%.

Many people are not aware that they are liable to pay tax on any interest amount they receive. This interest is a one-off payment and you can actually pay this amount without entering the self-assessment system. All you need to do is inform the HM Revenue & Customs (HMRC) and mention your tax code to make the necessary adjustment and payment.

Check if tax is already paid.

It is essential to check whether or not the tax payment on your PPI compensation has already been paid. There is a possibility that the tax might be directly deducted from your compensation. This mainly differs from company to company.

The HMRC mentions that banks and other financial institutions are not obligated to shoulder the responsibility of deducting taxes. This occurs because there are specific exemptions for them in tax deduction from yearly interest.

In fact, it’s compulsory for companies to deduct tax from yearly interest as and when paid. In case the company makes a tax deduction they should also inform customers about the same. If and when you receive the refund letter from the company, they are liable to inform you that you need to pay tax on the interest.

Keep in mind the following factors:

The amount of tax that you are supposed to pay depends on various factors:

  • If you are a non-taxpayer and your tax has been deducted from the interest, you have complete authority to claim back your deduction. In case you are a basic taxpayer and tax has been deducted from your interest, there is nothing to worry about.
  • If you need a complete tax return, you must enter specific amounts in the right section.
  • If you are a higher rate taxpayer and have obtained interest with or without tax deduction report it to the HMRC. If tax is not deducted from interest make sure that you contact HMRC and carry out the needful formalities.

The misconception about refund tax.

Many people believe that refund tax is calculated on the entire refund sum, but in reality it is calculated only on the interest amount. The tax man considers the fact that refund is your sole right. But the interest is the part where they have their contribution.

PPI payday: getting your tax back.

You can apply for tax back by filling in the R40 form and posting it to HMRC. You have to be careful while filling the form and mention correct details in it to ensure that the process goes through smoothly.

Claimants that have received multiple refunds inclusive of the 8% interest in it need to be careful of the following factors, which we’ll sum up below:

  • Include all refund payments where 8% interest was added even those, which the lender did not deduct, tax off.
  • If you have received any other interest from your taxable bank account include that as well.
  • Avoid including any interest, which is not 8% as it might not be taxable.
  • Do not include other interest from National Savings and Investments (NS&I) or Individual Savings Accounts (ISA) as they are not taxable.

There is a possibility that you may receive your refund within six weeks but it mainly depends on the financial institution or bank handling the process.

PPI refund calculations.

There are different methods through which you can calculate your PPI refund. Mostly, people prefer to calculate their refund amount manually or by using online calculators.

It is vital to know all the important figures pertaining to your PPI payout before you actually start the calculation process.

In order to determine the accurate refund amount you must consider the following factors while doing your calculations:

  • Loan amount
  • Annual percentage rate (APR) on your loan
  • Monthly loan payments, which you’ll be charged, excluding PPI payments
  • Long term (tenure of the loan)

Once you determine your APR, divide that figure by 12 and then multiply the figure with your monthly balance. It is necessary to analyse how much you have paid or are currently paying for the loan while making the calculations.

A simple way to do this is by checking your monthly statements and calculating the sum of all premium and interest payments you made to know the exact amount.

For example, if the cost of PPI was £1 for every £100 then imagine the amount for £100,000 over a span of 25 years. That’d be £1,000!

In the history of PPI claims, mortgage claims have received the largest amount refunds, mainly because the amount borrowed and the tenure of policy was comparatively greater than the others.

Another reason why mortgage related PPI claims are seen by many as ‘more serious’ is that the sum amount of these mortgage policies is quite huge. Therefore, so is the compensation.

The simplest way to analyse whether you have been mis-sold PPI along with a mortgage is to check your paperwork. If you find any traces of PPI, Accident, Sickness and Unemployment cover (ASU), payment insurance or similar terms you can seek assistance from us.

We can carry out a free PPI check and inform you whether you have been mis-sold PPI in the past or not.

Some people are very hesitant about bringing forward their PPI claims especially if they can’t locate important paperwork with respect to their mortgages, loans or credit cards. If you are stuck in a similar situation, you can get in touch with your lender and ask them to share a copy of the paperwork with you.

At times, it is tricky to get these documents from lenders, especially if it’s over six years since the account was closed. But you can try for it either way.

This prevents a scenario wherein you are mis-sold an insurance policy and are unaware about making additional payments for it. You may not have necessarily been mis-sold a PPI policy but it is essential to check for it all the same.

What is a PPI refund windfall?

Have you ever gone through a PPI compensation process or heard about someone else’s experience? Are you aware about the fact that the interest amount of your refund amount is taxable?

If you have read through this guide to reach here, you will be aware about it already, but if you have landed in this section directly, a quick summary should help.

Banks and other financial institutions that pay out PPI refunds to customers also notify the HMRC about it. They also mention whom they have paid the refund out to and the total compensation amount presented.

Financial institutions and banks mainly operate on two approaches that are not without fault. Some banks have paid out compensation to customers without deducting any tax. Others have deducted basic rates without taking into account which tax bracket the customer falls into.

These institutions or lenders have basically overlooked the fact that every individual has a different tax position. And that means the tax obligations also vary. For example:

  • Basic rate taxpayer:

Firstly, determine whether you are a basic taxpayer with some additional income. Secondly, if you have received gross interest this means you have tax liability to HMRC based on the self-assessment norms.

Now, if the basic tax rate has already been deducted from your refund you do not owe any tax to the authorities.

  • Higher rate taxpayer:

If you belong to this bracket you have to reveal the interest income that you pay every year on your tax return. This will help to determine whether you fall under the top up (basic tax deduction) category or have received gross amount.

  • Currently not a taxpayer:

If you do not pay tax then you need to get a confirmation of whether you still remain a non-taxpayer with your PPI income. There is a possibility that you may be paid gross PPI interest, which means it is inclusive of the tax paid to the HMRC.

There is also a possibility that your tax has been deducted but you currently belong to a category below the threshold. In this situation you can claim a refund from HMRC.

It is also important to check whether you have mentioned all relevant return details in this year’s tax return before you submit it.

PPI refund tax changes.

Several tax changes took place in April 2016. These changes have a significant impact on the taxation of the interest. You must keep these changes in mind when dealing with compensation amounts of mis-sold PPI policies. These include the refund and statutory interest of 8% included in your compensation amount.

As mentioned earlier, only the interest part of your refund will be taxed. For instance, if the policy is 10-12 years old then the interest will add up to a substantially amount.

For instance, if Mrs. G, paid £3,747, she will earn a gross 8% interest of £1,463, minus basic rate tax deduction (£292). This means the total settlement will approximately be worth £4,918.

The new changes include:

  • If you are a basic taxpayer the first £1,000 of interest from your savings is deemed as tax-free.
  • If you are a high taxpayer £500 of interest is tax-free.
  • Banks do not cut tax from interest they pay, as people won’t have to pay any tax.
  • If you have to pay tax then it can be collected by changing your tax code.

The interest that you receive in PPI refund is treated similar to the interest earned on your savings.

What if you declare bankruptcy during the claim process?

By the time you receive your refund or apply for it you may have declared for bankruptcy. There are certain different rules for individuals who have turned bankrupt prior to or during their claim process.

If in case you brought forward a PPI claim while you were bankrupt there is a very slim chance that you will see any money received as part of your compensation payment.

If you were mis-sold a PPI policy before you became insolvent then any compensation received thereupon is considered an asset. This means that all your assets are likely to be transferred to the official receiver or trustee.

Even if you have been discharged from bankruptcy the rules remain the same, which means that your refund will be handed over to a trustee or concerned officer.

These official receivers have legal authority to claim the money and settle outstanding debts against your name. If all the debts/obligations are settled you might get back a portion of your PPI winnings.

How to start a PPI claim during bankruptcy

If you have been mis-sold PPI policy, you can start by informing the official receiver about the same. In fact, before actually applying for a claim you must check with your trustee or official receiver.

Additionally, if you have already applied for a claim then you must inform your bank as well as trustee or legal receiver about the mis-sold policy and claim. There are chances that the payout might be directly passed on to the official receiver or trustee. Thus, it is important to clear all details with the concerned authority.

The trustee or official receiver may end up obtaining the entire sum of the compensation.

On the other hand, when you are released from bankruptcy, you can keep the inheritance or lottery win. A PPI reclaim is managed differently under such circumstances. This is because if you are granted a PPI compensation it is counted as an asset and therefore, the official receiver has complete ownership over the compensation amount.

The ticking clock

You may have heard about the official PPI deadline by now. But, do you know that the FCA has launched a campaign to increase awareness about the mis-sold policies?

This is being done with the intention of informing people that they have stipulated period within which they can apply for a claim.

The FCA has already initiated an awareness campaign starring Arnold Schwarzenegger. If you have been putting of your PPI claim for a while, now is a good time to get started, as the backlog of complaints and the subsequent delay will rise as the deadline approaches.

Here are some important facts related to the upcoming 29 August, 2019 PPI claim deadline:

  • People who have been mis-sold PPI need to apply on or before 29th August, 2019 or else they lose the right to apply for a claim.
  • New guidelines were implemented based on the outcome of the Plevin case, which involved the claimant Susan Plevin and Paragon Personal Financial Ltd. The Supreme Court’s decision on the case--which was about undisclosed commissions on PPI policies--has paved way for further avenues of claiming PPI via the ‘Plevin rule’:
    • Firms are now needed to reconsider rejected mis-sold complaints that are now eligible under the Plevin ruling.
    • The deadline is not applicable to future complaints, which concern a rejected claim on a current PPI policy. This is in case the claim was rejected for reasons to the sale, ineligibility, limitations or exclusions.
  • Most of the rules and regulations will be implemented from 29th August, 2017 while some are applicable since March, 2017.

You may have an earlier deadline if you have already received a redress letter from your bank. If your bank has sent over a redress letter in the time span of 2013-15, your PPI claim deadline is three years from the date you first received the letter. Not the August 2019 deadline.

So, start skimming through all your postal correspondence with your bank and check if your bank previously sent a redress letter to you, as it has ramifications on when you can bring forward a claim.

On the other hand, if you fail to find the letter you can contact your bank and enquire whether they sent you a redress letter to begin with. This is the best move in your current situation and it is important to start the process as soon as possible, as your final date is different than other people.

If you start today, you can make sure that you do not miss-out on any important step in the reclaim procedure.

Previously rejected claimants get a second chance to claim successfully

According to FCA Chief Executive, Andrew Bailey: “the main aim of the advertising campaign is to encourage people to decide whether they have been mis-sold PPI policy or not.”

The result of this campaign is likely to increase the number of claims and successful re-submission of eligible rejected claims.

This initiative by the FCA has resulted into a major U-turn for rejected claimants as they get a second chance to reclaim their hard earned money.

What if the company that mis-sold you PPI no longer exists?

There are good chances that by the time you apply for a claim the bank or financial institution has gone under. In such a scenario you can seek assistance from us as we have experience in dealing with such situations.

We will start from scratch by first determining that you have been mis-sold the policy as it can set the course for further action. This also helps us to collect relevant information about that particular bank or financial institution.

We can also get a credit check done, which mentions necessary details of all your financial agreements in the past four to six years.

You can contact the lender and check the terms of the policy you were sold as they are subject to change over a period of time. If you were mis-sold a policy during the late 1980’s it might be difficult to trace your credit history.

In such circumstances, you have only one option to contact your bank and collect all necessary details.

Initiative to make the PPI claim process simpler

The time-consuming nature of the PPI claim process has led to many people not making a claim at all. Many are also of the belief that applying for a PPI claim involves numerous legal formalities, which leads to a long, drawn-out process.

In reality, the claims process for PPI is evolving and it is comparatively simpler today than what it used to be earlier.

Moreover, credit card companies and banks have agreed to stick to a uniform process, which is easy to understand and implement. This common procedure minimises hurdles in the process as both parties involved are well aware about their roles and responsibilities.

Additionally, unnecessary to and fro of the paperwork is reduced, which results in less miscommunication.

Making your own claim

Victims are being requested to act as soon as possible on their PPI policies as a time limit has been set for future claims. Besides, the claim process is not entirely quick or straightforward.

On the other hand, patience and persistence are the only two ways to fruitfully resolve your claim.

PPI was majorly sold during 1980’s and early 2000’s but the consequences of this fiasco still remain. There are individuals who prefer to apply for a claim on their own. To these individuals we would suggest a simple process that can really work for them.

This process is more suitable when you are not in a complex situation and have all the necessary documents at hand. You also need to have sufficient knowledge about the current scenario and various norms that you would have to follow.

The process of a successful PPI claim consists mainly of five steps and they are:

Step #1

The first step is to check whether you have been mis-sold a PPI policy along with a loan or any other financial policy. You will have to check all documents that you have held for that particular policy. This includes documents about paid-off loans or mortgages.

It is very possible that you were sold a PPI policy along with a loan that has already been repaid. You can also contact the concerned bank or lender to gain relevant information about your transactions.

A scenario wherein you felt compelled to buy a PPI policy because of it being implied that the success of your loan/mortgage application depends on it are increasingly commonplace. Even though you bought the policy yourself, such a scenario is considered as mis-selling.

Another mis-selling possibility is that you could have been sold a PPI policy while you were working at that particular time, self-employed or were already suffering from an illness. As self employed customers and those suffering from pre-existing medical conditions are excluded from claiming on the PPI policy, it is considered as mis-selling.

There have been quite a few cases wherein DIY complaints have successfully acquired reclaims. For some straightforward claim scenarios, it is easy to make the claim by yourself.

An average payout of £1,800 can be expected for a PPI claim.

Step #2

The next step is to complain about the mis-sold policy to the lender with the help of all the relevant paperwork that you have with you.

Step #3

Your lender or bank official must reply to you within a span of eight weeks. If they do not do so, you can contact the Financial Ombudsman Service (FOS).

You can also contact the FOS if you are sure that you deserve a better refund amount than what the lender is currently offering you. You can calculate the refund amount based on your premium payments and the duration of your policy.

You need to remember the following when you are applying for a claim on your own:

  • Be completely honest.
  • Get your facts right and gather all relevant and necessary documents before you apply for a claim.
  • Keep your emotions at bay. Do not connect your personal or professional life along with the claim as it may affect the outcome.
  • Any and every record can be useful. Keep all records with the lender or credit Card Company guarded. Do not throw them away.
  • The PPI compensation process is rarely instantaneous. Therefore, be patient during the process and let it run its course. The bank or lender also requires time to process your application and verify it.
  • If you know that you are right be determined in your pursuit of claiming compensation. Do not give up.

Free PPI check

iSmart offers a free PPI check because it is the most crucial step in the process of making a PPI claim. It is not necessary that you have PPI only with one of your financial agreements. It could have been mis-sold to you with other loan, mortgage, credit card or car finance agreements as well.

This free check reduces the efforts from the lenders end and thereby saves lot of time as your process can move at a comparatively faster pace.

iSmart follows this simple process to check whether or not you have been mis-sold a PPI policy:

  • Check for PPI:

We begin the process by sending a PPI request to the lender. The lender has 40 days to share all your previous transactions with us. We try contacting them again after 50 days, so that we can analyse the paperwork and determine the correct course of action.

At times, people assume that they have been mis-sold just one PPI policy but a comprehensive check shows that multiple PPI policies were attached to previous agreements.

Additionally, it is not necessary that you have been mis-sold PPI instead you could have misinterpret a different policy to be PPI.

Once we conclude that you have been mis-sold a PPI policy we get in touch and update you on all our findings.

  • Confirmation of PPI policies found:

We will get in touch with you via email, letter, message or phone call to inform the result of our free PPI check. We will also inform you if PPI was attached with any other loan or mortgage you took out previously.

At times, PPI was sold along with other policies but it was terminated soon thereafter. Such instances initially indicate that you have been mis-sold PPI when the records show that the policy was duly cancelled.

It is only after in-depth investigation that you can determine if you have grounds for a mis-selling claim.

You are not entitled to any refund if you were not sold PPI.

  • What you should do next:

If you think that PPI was mis-sold, you can seek assistance from us and we can get the claim process started on your behalf. If our PPI check shows no PPI, the process ends here itself.

If PPI is found via our check you are left with two options. You can either contact us to take the claim process further or apply for a claim yourself.

Let iSmart handle your claim.

If you want us to take your claim forward, we get the process started by carrying out in-depth research about your situation. After that we fill out a detailed PPI reclaim questionnaire on your behalf based on your inputs. This can be done over the phone and we will also send you a copy of this questionnaire to get your official consent.

Along with this, we will send you an agreement mentioning all details about the terms and conditions with respect to the services we offer. If you agree to all the terms and conditions you need to send back a signed agreement, which showcases your consent. .

How far can I go to claim back PPI?

Some companies mention that there is a fixed tenure of 12-15 years to claim back your PPI refund but as of now there is no fixed time duration concerning reclaim of old PPI policies. You might have been mis-sold PPI years ago, you still have the right to apply for a claim up to the 29th of August, 2019.

In fact, there have been many previous instances wherein old PPI policies were unfairly rejected by some banks/financial institutions. You can definitely claim again for PPI if you are sure that you have been mis-sold a policy. Get in touch with our experts if you are afraid of being rejected again. We can look into the intricacies of your case and help you take an informed decision based on our analysis.

We also go the extra mile for our clients by contacting the FOS to look into the matter if the lender or credit card company does not corporate or if the claims are being rejected unfairly. We can do this on behalf of our clients and minimise trouble for our clients in the claim process.

The FOS can analyse and study the case in detail. Thereupon, they can come to a valid and reasonable conclusion, which is fair for both parties. FOS looks into the pros and cons of the situation and comes to a conclusion based on it.

Considering all the factors and misconceptions we’ve been through, it’s important to apply for your claim as soon as possible. Especially as the PPI claims deadline looms!

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