Martin Lewis, 46, appeared on This Morning today to offer advice on PPI. The insurance was first introduced to cover the repayments on a credit card, overdraft, loan or mortgage for when people are sick and can’t work. However a system error meant a lot of people who used this ended up being overcharged and even those who have had PPI repayments paid to them already could be owed hundreds from tax, according to Martin. According to Martin Lewis, there is a way to check how much money people are owed and how they can claim it back.
Why can you get reclaim tax if you’ve already had a payout?
Speaking on ITV’s This Morning today, he explained people can get paid back for mis-sold PPI can have three main elements.
Martin said: “The money you get paid back for mis-sold PPI can have up to three main elements.
“If the bank, outrageously, added an extra loan to your original loan just to pay for the PPI – you get back any interest you were charged on this extra loan.”
Martin explained, with this people get statutory interest at eight percent a year, but not compounded, on the total of both those sums for each year since they got the PPI.
“Therefore, oversimplifying somewhat, it counts as savings interest as if you’d earned it on your saved cash,” he continued.
“This applies even if the PPI payout was used to pay off existing debts with the lender, or went towards claims firms’ costs, as you are still benefiting in the same way.”
Why people are owed this tax back?
Some people are owed tax after personal saving allowance (PSA) launched on 6 April 2016, the Money Saving Expert revealed.
Martin explained: “PSA allows basic 20 percent rate taxpayers to earn up to £1,000 a year of savings interest tax-free, higher 40 percent rate taxpayers can earn £500 and top 45 percent rate taxpayers don’t get anything.
“The statutory interest from PPI payouts counts within your personal savings allowance.
“PPI payouts still automatically have 20 percent tax deducted before you get it. So if, like most people, you haven’t earned over your PSA in the year your PPI claim was repaid, then you can claim it back.”
The financial guru also noted tax can be claimed back as far as the 2015/16, before PSA launched, but this only applies to people who were non-taxpayers at the time.
How can this be reclaimed?
For those who are unsure if it affects them, he explained that it likely applies to anyone who had had a PPI payment since 2016.
Martin explained: “Ninety-five percent of people don’t pay tax on their payment but tax was taken off automatically.
“If you had PPI, get your form and it’ll say what tax was taken off. Most people shouldn’t have paid that tax and can have it refunded.”
To reclaim the tax, Martin explained people will need to fill in an R40 form online which allows those owed money to reclaim tax.
He said: “To reclaim the tax you’ll need to fill in the online, R40 form, or form R43 if living overseas.
“Higher or additional-rate taxpayers will need to declare the extra income, just the statutory interest, not the other parts of the refund, to HMRC to ensure they pay the correct tax.”
For full details on how the tax on PPI payments work and how this can be done is on Martin’s ‘Reclaim tax on PPI payments’ blog.
Last week, Martin explained how making a switch can help people save £175.
He also issued a warning for those who have a store card or credit card.