I have received a cheque from my bank for being mis-sold PPI. Is any of it taxable?
Question: I have received a cheque from my bank for being mis-sold PPI. Is any of it taxable?
Answer: The tax due will depend on the different components making up your cheque.
Typically, it will consist of:
1. - a refund of the PPI premiums themselves
2. - historic interest (interest paid on the PPI premium because it was added to a loan or credit card)
3. - simple interest at a rate of 8% per annum
The simple interest is to compensate you for being deprived during the term of the PPI policy and is taxable- like any normal bank interest is. The bank may deduct basic rate income tax of 20% before paying you the simple interest. As a result, if once you include the interest in the calculation of your total income you are still a basic rate taxpayer, you should not need to complete a tax return nor have any additional tax to pay on it.
Interest up to £1,000 (£500 for higher rate taxpayers) may be tax-free if it is covered by the personal savings allowance. If you think tax has been incorrectly deducted from your interest, you may be able to get a tax refund. If the simple interest is not taxed and exceeds £10,000 or if you are not a basic rate taxpayer, then there could be tax implications and you should confirm with HM Revenue & Customs whether they require a tax return from you. Conversely, if your income is under the personal allowance, you may be due a tax refund.
Q: Will I pay tax on renting out my driveway?
I live on a commuter belt and I was considering advertising my driveway for rent. Will I pay tax on renting out my driveway?
A:Possibly, it will depend on your circumstances and how much rent you’re planning to charge. However, in April 2017 two new £1,000 allowances for property and trading income were introduced. If your income (before expenses) is less than the allowance, you don’t have to declare the income or pay tax on it. If your income exceeds the £1,000 allowance, you have the choice to deduct the allowance or the actual expenses from your income when you’re calculating your profits.
The main exclusion is that neither of the new allowances apply to partnership income from carrying on a trade, profession or property business in partnership. The new allowances have yet to be legislated but the government has confirmed that they will be included in the Second Finance Bill expected this Autumn and will be effective from April 2017 as announced.
Q: What should I do when Class 2 NI is abolished?
IA: I’m in my 50s and most of my income comes from rental income, however, I have a small business that I run on the side. My income is low but I voluntarily pass Class 2 National Insurance in order to maintain my National Insurance record. What should people on low incomes do when Class 2 is abolished next year?
Investment advice is a regulated area, so accountants must be careful when advising on whether to pay National Insurance contributions for the benefit of the state pension. If you’re concerned about your National Insurance record, firstly, I would recommend obtaining a state pension forecast. That will clarify your position and tell you exactly how many years you might be short by if you’re looking to ensure you have a complete record by the time you hit state retirement age.
Under the current regime, if you do find you have a shortfall and need to continue contributing, you have two obvious choices:
4. - Earn more than the lower profits limit. For the current tax year 2017/18, it is £8,164. You would have to pay National Insurance at 9% on any excess
5. - Pay Class 3 National Insurance. For the current tax year 2017/18, Class 3 contributions are £14.25 per week
There is a proposal to create a zero-rate band for Class 4 National Insurance, similar to how the lower earnings limit works for employees. This has yet to be legislated though.
Advisory fuel rates for company cars - What are the current advisory fuel rates?
The advisory fuel rates apply when you either:
· reimburse employees for business travel in their company cars
· require employees to repay the cost of fuel used for private travel
The rates take into account changes in fuel prices so can change regularly. The rates to use from 1st September 2017 are below.
Where there has been a change the previous rate is shown in brackets:
Engine size - Petrol - amount per mile - LPG - amount per mile
1400cc or less 11 pence 7 pence
1401cc to 2000cc 13 pence (14 pence) 8 pence (9 pence)
Over 2000cc 21 pence 13 pence (14 pence)
Engine size Diesel - amount per mile
1600cc or less 9 pence
1601cc to 2000cc 11 pence
Over 2000cc 12 pence (13 pence)
For more information contact Nick Casson at TaxAssist Accountants, Eastbourne on 01323 737770