| Claiming PPI Compensation, PPI, PPI Refund

There have been many cases where the PPI buyers were mis-sold the policy. They were sold the policy without their knowledge, along with the loan they had taken out or the credit they borrowed. Many of the buyers were also told that buying PPI is mandatory along with their loan. Hence, on realising the fact that they were mis-sold PPI, the buyers can claim their funds back from the financial institutions, along with a fixed percentage of interest.

However, a major question is whether you have to pay tax on the amount you receive as a claim or not. The answer is yes. You need to pay a small amount of tax, but not on the entire claim received. To understand this, you should know that any PPI claim refund consists of the following three parts:

  • The amount of premiums you paid for the policy
  • The extra funds given by your bank (along with the borrowed loan) to purchase PPI, along with interest
  • 8% Statutory interest on the amount which was owed to you by the lender

How Much Tax Will You Have To Pay?

Out of all these, you are only required to pay tax on the statutory interest received in the claim. The reason behind this is that according to the norms, it is assumed that if you had not spent your money for buying PPI, you would have put the money in the bank, earning interest in the process. Hence, the amount is taxed similar to savings interest. However, it is not very direct as the interest is an earned amount in your tax paying year. This savings interest now comes under Personal Selling Allowance (PSA). This allows you to earn without paying tax up to £1,000 when it comes to income generated through the earned interest. Also, the HM Revenue and Customs (HMRC) have declared that the interest received on PPI refund can be considered as interest under PSA. Thus, you will have to pay tax on this interest if you earn more than £1,000 per year as statutory  interest in the PPI claim.

Usually, the tax payable by you is deducted directly from the claim amount before the amount is paid to you. There may also be cases when you have earned interest but it is below the minimum limit of PSA, which is £1,000. In these cases, you have all the right to claim back the amount which was wrongly taxed by the banks before paying you the claim. You can do this using the R40 form or R43 form in case you live abroad.

Also, if you are a higher tax payer or pay additional taxes, you need to show the amount you received as the statutory interest (8%) to HM Revenue and Customs while making the claim. This is to ensure and confirm that the correct amount is deducted from your claim as tax. However, if you have any issues or confusions, you can always contact your office or give a call to the income tax helpline to get a reliable solution.

Thus, though in very small proportions, you do need to pay tax on the amount you receive as your PPI claim refund.


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