When rushing to complete the last few tax returns, it is tempting to skip that vital stage of thinking what could be missing. Two examples of missing items are: child benefit, and interest paid as part of a PPI settlement. We explained the implications of such omissions in last week’s tax tips email. We also had news of a fault in HMRC’s computer system which affects reductions in payments on account for 2016/17.
Below is just an extract from last week’s tax tips email. You can register to receive future copies by following the link on the right (or below, if you’re reading this on a mobile device).
Three years ago we advised you about the taxation of settlements of payment protection insurance (PPI) claims – see our newsletter on 13 February 2014. Many thousands of people received such payments, and most believed that the entire payment was tax free, so it would have no effect on their tax liability.
In reality the settlement will have included interest calculated at 8% on the PPI premiums refunded. That interest is taxable, and some banks deducted basic rate tax, but other lenders did not, see examples in HMRC’s savings and investment manual. In either case the interest portion of the PPI settlement should be declared on the taxpayer’s return for the year in which it was received.
HMRC have now woken up to the fact that many taxpayers forgot about the PPI interest when completing tax returns, so they have written to around 10,000 individuals asking them to check the interest entries on their 2014/15 returns. You won’t have received a copy of this letter, as it was not copied to tax agents, even where an agent was appointed to act.
A statement from HMRC said the letters were targeted using information from banks, financial institutions, third party intermediaries and social lenders. However, this data could only be matched to taxpayers using names and addresses, as NI numbers were not recorded by the interest payers. It is possible that some of the letters will have been mis-directed.
HMRC’s letter does not mention PPI, so it may fail to jog the memory of the recipient. If your client has received such a letter, certainly double check whether their regular bank interest was correctly recorded, but also ask them about any PPI settlement they may have received.
The 2014/15 SA tax return can be amended online until 31 January 2017. Corrections for earlier years will have to be notified to HMRC by letter.