Do I have to pay tax on my PPI refund?
The short answer is YES but not in all circumstances and not on the full amount received.
When you received your funds after a successful claim, you should have received a breakdown detailing:
- the refund of PPI premiums paid;
- any interest you paid on these premiums; and
- statutory interest (currently 8%).
If the statutory interest (on all your policies) exceeds £1,000, you will have tax to pay. If you are a higher-rate tax payer, this threshold is £500. This is because of the Personal Savings Allowance introduced in 2016 allows £1,000 (£500) interest tax free.
What do I need to do?
Some banks or lenders will automatically deduct tax at basic rate from the statutory interest and pay it over to HMRC. This should be noted on the repayment breakdown.
If you have a low income then you may be due a refund of the tax deducted at source. You need to apply to HMRC to get this. We suggest you call HMRC on 0300 200 0033 or go through the HMRC online questionnaire which will guide you towards the appropriate course of action.
If you are self employed then you can deal with the interest in your self assessment tax return.
If the interest is over £10,000 and you do not already complete a tax return, you will need to do so and you should contact HMRC on the number above.
If you are unsure what you need to do, please contact us and we'll help you through the processes. This is FREE and you don't need to come to our offices (unless you want to).