Policy paper

Revenue and Customs Brief 33 (2014): reporting Payment Protection Insurance interest payments

Updated 1 October 2014

Who needs to read this?

Financial institutions that make returns to HM Revenue and Customs (HMRC) reporting payments of interest in redress payments for Payment Protection Insurance (PPI) mis-selling. The changes below make additions to the list of Fully Reportable (FR) countries when reporting interest in redress payments.

Action required

All Financial institutions who make PPI redress payments for people resident outside the UK need to report such payments to HMRC with their Bank and Building Society Interest (BBSI) or Other Interest (OI) returns where the country of residence of the individual is on the list of FR countries.

Where the individual lives in an EU Member State, financial institutions should use the EU Savings Directive (EUSD) reporting structure and system. This will allow all reports for EU Member States to be in the same format.

Issue

Payment Protection Insurance (PPI) was mis-sold by some financial institutions and they are currently making redress payments to compensate people who suffered from the mis-selling. Such payments contain an element of interest; that element is taxable when paid to a person in the UK.

Some of the people getting the redress payments live outside the UK. The normal system for reporting interest paid on a UK account to a resident of another country for:

• individuals who live in FR countries and the UK is through the annual Schedule 23 returns
• individuals who live in another EU Member State is through the annual European Union Savings Directive return

The information gathered about individuals living in other countries enables the UK to meet its obligations under international agreements to exchange information with those countries. However, these redress payments are not reportable under the normal arrangements applying for the EUSD.

So that the UK continues to meet its international obligations HMRC has decided to increase the number of FR countries. This is to ensure that all PPI redress payments that include an element of interest paid to residents of these countries are fully reported. Also information about the payments can be exchanged with the country concerned.

The information reported to HMRC in the UK is then sent on to the relevant country. In the case of individuals who live in EU countries HMRC has decided to use the EUSD format to require this information. This makes it more straightforward for financial institutions to know what to report; the data can then be sent with other EUSD data to Member States.

How the change will be implemented

HMRC are announcing the increase to the list of FR countries to give the standard 6months’ notice of changes to the FR countries list. The additions to the list only cover PPI interest payments. All other interest paid to residents of the new FR countries is already reportable using the standard EUSD reporting requirements. Where information is reported using the EUSD format it does not need to be included in the UK domestic return for other FR countries.

The existing FR countries

These are:

Australia, Canada, Japan, New Zealand, Norway, South Korea, USA; and the UK dependencies of Anguilla, Bermuda, Cayman Islands, Turks and Caicos Islands.

These all remain on the list and will be joined for the Fiscal year starting 6 April 2015 by:

The additional FR countries

These are in addition to those FR countries mentioned above.

Austria, Aruba, Belgium, Bonaire, St Eustatius and Saba, Bulgaria, British Virgin Islands, Croatia, Curaçao, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Ireland, Isle of Man, Italy, Jersey, Latvia, Lithuania, Luxembourg, Malta, Montserrat, Netherlands, Netherlands Antilles, Poland, Portugal, Republic of Cyprus, Romania, Sint Maarten, Slovakia, Slovenia, Spain, Sweden.

Background

Returns of interest paid by financial and other institutions are made annually under Sch 23 to Finance Act 2011. The returns covering UK residents are called BBSI return and OI return depending on the institution they are made by. Returns of interest paid to residents of the EU outside the UK are made under the terms of the EUSD which has been incorporated into UK law through the Reporting of Savings Income Information Regulations 2003 (SI 2003/3297). The information reported for UK and EU residents is not exactly the same. Full HMRC guidance on interest reporting is provided through the website at the link below:

Type 17 and 18 reports of interest and EUSD or by phone from Nick Wright on Telephone: 03000 576 380.

Issued 1 October 2014