How to Make the Best of Your PPI Claim

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Claims on your payment protection insurance policy have to be honored and cleared by the concerned financial institution, according to the guidelines issued by the High Court.

The Process

Once you have submitted your claim form with all the details, you will receive an acknowledgement from the bank or concerned insurance company. They will then process your claims and settle your claim as per their records. In case you are not satisfied with the compensation given, you can take your complaint to the Financial Ombudsman, who will arbitrate on the issue.

Interest on Outstanding

According to the High Court notification, financial institutions or banks have to settle the claims and also pay an amount of interest which is fixed at 8% for every year on the policy that was held by you. This represents the amount of money that you would have earned, if you had placed your money in the savings bank.

Taxation Liability

Usually there is no tax liability on the compensation claimed by the customer who had been mis-sold the PPI. However, the interest that is paid on the claims is taxable based on the customer’s Income Tax band. If the banks or building societies are the ones paying the interest, they usually do not deduct tax on the interest, as they are under specific exemptions. However, all other companies including banks and financial groups must deduct tax on the yearly interest that they are paying out.

Rate of Taxation

The amount of tax that must be paid on the interest received varies depending on the customer’s Income Tax band. The minimum band rate is 20%, but there may be some customers who fall into the 40-50% band range. You can take help of http://www.ppiclaimscalculator.org.uk to find out how much compensation you will receive and what could be your possible tax liability.

Tax at Source

Before you pay tax on the interest amount received by you, make sure that you check out if the tax has been deducted already by the payee institution. Usually when you receive a letter of refund from the bank or other financial institution, they mention whether the tax is already deducted or you need to pay taxes on the refund amount.

Non-tax Payers

For non-tax payers for whom the tax has already been deducted before payout, the customer has to file a claim from the HMRC to obtain a refund on the amount that has been collected on their behalf.

In case the customer is in the basic band rate and the tax has been deducted at this rate, then nothing else needs to be done. You only have to complete and file your tax returns form. In case the customer belongs to a higher tax band, but the tax on refund is only at the basic rate, then the customer has to report this to the HMRC. The customer has to pay the difference in the amount by including it in the tax returns that are filed annually.

By being alert and cautious, you can make the best of your PPI claims and be within the taxation rules too.

Author Box:

Parker picks on the tax side when you make any PPI claims. He makes you understand everything related to tax and also advises taking help of http://www.ppiclaimscalculator.org.uk to know your compensation amount.

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