Money News

Tax on PPI compensation
The banks are in the middle of paying out an estimated £6 billion compensation after systematically mis-selling payment protection insurance to just about anyone who took out a loan or credit card over the last few years. But HM Revenue & Customs may well want a slice of any cheque you are paid. The payment is in two parts. You will get a full refund of all the premiums you paid. That part is tax-free. But you will also get interest on those payments from the date they were paid at the rate of 8%. Compensation can stretch back almost to the start of the century so the interest can be significant. One case I saw dated from 2003. The payment was £1700 but of that £500 was interest and at the basic rate of 20% tax of £100 was due.

If you get a payment read carefully the letter that comes with it. It should set out how much of the compensation was return of premiums and how much was interest. The interest payment will be counted as income in the current tax year and, if you are a taxpayer, tax will be due.

Most major banks are not deducting this tax before making the payment. They include Lloyds (including Halifax and Bank of Scotland), Cooperative, HSBC and Barclays (including Barclaycard). If you are a taxpayer you are legally obliged to tell the Revenue about this interest payment. The tax due will be taken by reducing your tax code in 2012/13.

One bank, RBS/NatWest, is deducting basic rate tax on the interest before making the payment. However, if you have a savings account with the bank and have registered to have your interest paid gross then it may not deduct it. Loan companies which are not banks have to pre-deduct basic rate tax. And confusingly that applies to payments from Black Horse (owned by Lloyds) and FirstPlus (owned by Barclays). So if you pay basic rate tax it has already been taken and you need not inform the Revenue. But if you pay higher rate tax you have to declare it on your self-assessment form or tell the Revenue separately. If you are a non-taxpayer this year then you will be able to reclaim the tax which has been pre-deducted. You can do that using a form called R40.

More information: www.hmrc.gov.uk and search for R40

Tell them once
A new government service in England, Scotland, and Wales aims to help people who have been bereaved to inform local and national authorities about the death with just one phone call. The new ‘Tell Us Once’ service is offered in almost all local authority areas when a death is registered. The person who registers the death is given a phone number to report the death. Tell Us Once then informs the Passport Service, Driver and Vehicle Licence Agency, Department for Work and Pensions, War Pensions Scheme, council tax authority, HMRC, electoral roll, libraries, and the local council departments for a disabled parking permit, home care or council housing. Documents such as a passport or parking badge will still have to be returned. And any tax may still have to be paid or a refund requested. If a state pension continues to be paid the DWP may try to recover the overpayment. Always check if it has the right to do so as many pensions are paid in arrears.

More information: www.direct.gov.uk/en/Nl1/Newsroom/DG_188740

Tax reforms
If you have a tax gripe (and who doesn’t!) then the Government is listening. First with ears cocked is the Office of Tax Simplification – yes there really is one and it has an office (I’ve been there) in the Treasury. It is working to simplify the taxes that are imposed on pensioners. That includes of course, the tax on the interest on savings and how it is collected (and which David Cameron when Leader of the Opposition told Saga Magazine he would scrap if he won the election). It also includes the way the state pension is taxed – it is, confusingly, taxable but not taxed at source leading to confusion and errors on tax codes. And the age allowance – the extra tax relief given to those who reach 65 with a slightly higher amount at 75. But the age allowance is phased out as income exceeds £24,000 leading to a 30% rate of tax on some income above that level. The Office would like to hear your gripes by emailing ots@ots.gsi.gov.uk. Sorry but it is not staffed to take calls. Please respond as soon as you can in January.

Second, HM Revenue & Customs is anxious to hear views on how it collects tax. It has some very impressive plans – but will they make tax more accurate as well as clearer? One suggestion is an online tax account – a bit like an online bank account – which would allow everyone to see their earnings and tax position month by month.

The paper is honest about the problems with the current system, admitting “Many individuals are not fully aware of how to ch3eck their tax code.” It also promises a higher degree of accuracy in future when a new ‘Real Time Information’ computer system is working which will allow amendments to the tax deducted to be made and checked each month not just once a year. Download the paper from the HMRC website www.hmrc.gov.uk – put ‘Modernising administration’ in the search box. Comments by 24 February.

RED – Faster money moves
From this month banks will have to move your money more quickly online. Of course, faster payments have already happened in the UK and most accounts will now send and receive most amounts within hours if not minutes. But from this month a Payment Directive from the European Union means that all electronic transfers will have to arrive at their destination bank by the end of the next business day.

SILVER – Cheque guarantees
Weeks after scrapping plans to scrap the cheque completely the banks have been forced into a further climb down and will now look at re-introducing some sort of guarantee so that cheques can give certainty to the small businesses and charities that still want to accept them. A highly critical report from the Treasury Select Committee of MPs told the banks “there is a case for reintroducing either the cheque guarantee card or an alternative mechanism to ensure…confidence in cheques.”

e-mail Paul Lewis on paul@paullewis.co.uk