It has surfaced that millions of consumers, due to be given compensation following the mis-selling of payment protection insurance, will need to pay out tax on their payouts.
It is to be imposed on a typical eight percent in lost interest given to all those winning PPI claims in addition to reimbursed PPI payments and will mean, on average 50 per claimant will be paid in tax, however people acquiring bigger than average PPI payouts will have to fork out significantly more which will lead to around 350m overall being paid back into the HMRC.
A high court decision earlier this year led to British banks being forced to re-visit thousands of mis-selling claims regarding PPI, which was an insurance policy marketed at the selling time of credit cards, personal loans and other forms of debt and which had been sold to people on the basis that they would meet the repayments in cases where they had been made redundant or fell ill and were unable to work.
It later surfaced that a great many of the people who took out PPI had been mis-sold it since they wouldn't be entitled to a payment due to exceptions in the small print and there were many who were just not aware they had been signed up for PPI, having no knowledge of it.
The Financial Services Authority had introduced rules to prevent the mis-selling of PPI but the financial institutions complained these rules were not fair because they were going to be applied retrospectively and the British Bankers' Association (BBA) launched a high court challenge against the FSA and Financial Ombudsman but lost the resulting lawsuit.
Most of the banking institutions had put PPI complaints on hold until after the high court ruling, but from then reimbursement has been paid out and it's calculated that financial institutions will have to pay an estimated total payments of 4.5bn, made up of 3.2bn for reviewing previous PPI deals and 1.3bn for brand new claims received.
It is believed that around 6.4m people were mis-sold PPI from 2005 onwards and the typical reimbursement payout is predicted to be about 1,000 which is to include about 240 in interest. If that is to be taxed at a basic rate of 20% the Treasury will receive about 48 but it will get more for those cases where higher rates of tax are paid. For instance, some payouts are up to 16,000 which, if paid to a higher rate taxpayer, will result in over 1,500 being paid to the HMRC.
Customer groups have responded angrily to the reports with some people urging banks themselves to foot the bill. Marc Gander of the Consumer Action Group says it is an outrage that banks were selling overdrafts, loans and credit card loans at interest rates of up to 29% yet, when having to pay compensation to customers, they're charged at just 8%. He was quoted as saying that they are "taking the mickey" out of both their customers and also the financial authorities.
HM Revenue & Customs, in a announcement, pointed out that no tax is generally due on a settlement portion of compensation acquired by those who were mis-sold PPI and that not anyone should be worse off as, even if they'd not bought the PPI policy but had kept the money in an interest-bearing account, interest would still have been taxable.
It is to be imposed on a typical eight percent in lost interest given to all those winning PPI claims in addition to reimbursed PPI payments and will mean, on average 50 per claimant will be paid in tax, however people acquiring bigger than average PPI payouts will have to fork out significantly more which will lead to around 350m overall being paid back into the HMRC.
A high court decision earlier this year led to British banks being forced to re-visit thousands of mis-selling claims regarding PPI, which was an insurance policy marketed at the selling time of credit cards, personal loans and other forms of debt and which had been sold to people on the basis that they would meet the repayments in cases where they had been made redundant or fell ill and were unable to work.
It later surfaced that a great many of the people who took out PPI had been mis-sold it since they wouldn't be entitled to a payment due to exceptions in the small print and there were many who were just not aware they had been signed up for PPI, having no knowledge of it.
The Financial Services Authority had introduced rules to prevent the mis-selling of PPI but the financial institutions complained these rules were not fair because they were going to be applied retrospectively and the British Bankers' Association (BBA) launched a high court challenge against the FSA and Financial Ombudsman but lost the resulting lawsuit.
Most of the banking institutions had put PPI complaints on hold until after the high court ruling, but from then reimbursement has been paid out and it's calculated that financial institutions will have to pay an estimated total payments of 4.5bn, made up of 3.2bn for reviewing previous PPI deals and 1.3bn for brand new claims received.
It is believed that around 6.4m people were mis-sold PPI from 2005 onwards and the typical reimbursement payout is predicted to be about 1,000 which is to include about 240 in interest. If that is to be taxed at a basic rate of 20% the Treasury will receive about 48 but it will get more for those cases where higher rates of tax are paid. For instance, some payouts are up to 16,000 which, if paid to a higher rate taxpayer, will result in over 1,500 being paid to the HMRC.
Customer groups have responded angrily to the reports with some people urging banks themselves to foot the bill. Marc Gander of the Consumer Action Group says it is an outrage that banks were selling overdrafts, loans and credit card loans at interest rates of up to 29% yet, when having to pay compensation to customers, they're charged at just 8%. He was quoted as saying that they are "taking the mickey" out of both their customers and also the financial authorities.
HM Revenue & Customs, in a announcement, pointed out that no tax is generally due on a settlement portion of compensation acquired by those who were mis-sold PPI and that not anyone should be worse off as, even if they'd not bought the PPI policy but had kept the money in an interest-bearing account, interest would still have been taxable.
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