A common question concerning PPI refunds is whether or not the tax man will want a cut of your compensation.
If you succeed in making a PPI claim, your compensation will often be made up of:
- A PPI refund whereby all PPI premiums you paid are reimbursed
- Interest on all the payments you made at the rate of 8%
The PPI Refund is NOT Taxable
This is, effectively, your own money! It’s simply a refund of monies you paid for a product that was mis-sold. As such, this part of the compensation is not taxable.
The PPI Refund Interest IS Taxable
The interest rate on PPI claims is being paid at a rather generous 8%. This interest payment is taxable if you are a UK tax payer.
This will not be relevant to you if you are not a UK tax payer.
Some providers are deducting this tax at the basic rate of 20% before refunding it. Those providers include:
- All smaller loans providers which are not banks.
Most of the major providers are not deducting tax before issuing the refund however.
Banks not deducting tax automatically include:
- Lloyds TSB
- Co-Operative Bank
My PPI Provider Hasn’t Deducted Tax. What Should I Do?
When you receive your letter confirming your refund, the latter should layout specifically how much is a refund and how much is interest. Send this letter to your tax office explaining that you wish to declare the interest for tax.
My PPI Provider Deducted Tax But I’m Not a Taxpayer!
If your PPI provider is one of those automatically deducting tax but you are not a UK taxpayer, you’ll need to obtain a copy of the RC40 form from the HMRC website and follow the instructions.