There was a time when you couldn’t turn on the radio, or your phone, without getting an advert for PPI (Payment Protection Insurance) refund claims. If you made a successful claim, you may have banked the money thinking it was tax free.
That is not entirely true. Each PPI settlement includes interest calculated at 8% on the refunded premiums, which is taxable. Some banks deducted 20% tax from the interest, but other lenders didn’t.
The interest portion of the PPI settlement needs to be declared on your tax return for the tax year in which you received the settlement. You may have additional tax to pay on that interest if insufficient tax was deducted by the payer.
Each year HMRC receives a bulk download of data from the banks relating to PPI payments, which it attempts to match to individual taxpayers. However, the PPI data only includes a name and address, which could be years out of date, so the matching exercise is not perfect.
If you receive a letter from HMRC which mentions undeclared interest, this could relate to the PPI claim you forgot you made. Check whether you declared the interest portion of your PPI settlement on your tax return.
If you didn’t declare the interest, you may need to amend a tax return for an earlier year. We can help you do this.