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Morning All


A situation's cropped up that I can't quite get to the bottom of. Any advice would be welcome.


As a discharged bankrupt I complained about PPI to my creditors. The Accountant in Bankruptcy was fully aware of this and supported it. I reclaimed over £10,000. I've recently had letters from MBNA with further redress.


Obviously, as a bankrupt, the money was sent to my Trustee, etc. Some of the refunds (such as those from MBNA) took account of tax on the 8% interest. Others (a big chunk of the debts) did not. They paid gross.


I'm now self-employed while I await surgery. I certainly don't earn a fortune. How do the tax arrangements work out for a discharged bankrupt who has never received the redress in the first place?


Any help would be good.


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My understanding (and I am neither a lawyer nor insolvency practitioner) is that all lenders post 1 October 2013 must pay 8% interest net of tax. Prior to that some lenders paid net and others paid gross but advised you should declare as taxable income. If you are a basic rate taxpayer you would be liable to pay tax on amounts paid gross and unable to claim back tax already paid - as it is essentially correctly taxed. The taxation position is based upon your income, even though the money goes to the trustee.



If you earn insufficient to pay basic rate tax, my understanding is that any tax overpaid can be claimed back (it may be that HMRC will ask for confirmation that the accountant in bankruptcy has agreed to you making the claim). The refund of tax will however go to the trustee in bankruptcy just as the rest of the recovered funds have done.



My suggestion would be that given the trustee is responsible for managing the payments to advise him/her that some have been paid gross / some net and leave it to them to sort out - that way you can be seen to be co-operating as fully as possible - You may even find that they have already picked up on this and dealt with HMRC to sort this.



(This is my own informed opinion based upon experience of PPI redress, it is not a however a substitute for the professional advice of a tax accountant or insolvency practitioner and should not be relied upon for the purpose of any submissions that you may be required to make to HMRC)

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