It is unlikely that you will not have heard of the opportunity to claim back money spent on PPI (Payment Protection Insurance).
The deadline for ‘complaining’ and making a claim is approaching quickly (29th August) and as a consequence we are seeing more clients enquiring into the tax consequences of a successful reclaim.
The short answer to whether it is taxable is NO.
Interest on the amount that is repaid to you will be technically taxable.
You normally will have two elements paid to you:
- Your PPC compensation (not taxable)
- The statutory interest on this PPI (taxable).
The statutory interest is taxable, most UK taxpayers can receive £1000 (or £500 if you are a higher rate taxpayer) of interest tax free each year.
Most people will also have a personal allowance of £12,500 per tax year. This allowance is used against all of your income earned in the year. You only pay tax on income over this amount.
Generally, basic rate tax (20%) is deducted from your payment of interest and handed to HM Revenue & Customs. If you believe you shouldn’t be paying tax on this, it is possible to reclaim this tax deduction.
You can do this by doing so in your Self-Assessment Tax Return, or if you do not complete a Tax Return, by completing Form R40
If you’ve heard stories about friends and family winning PPI successfully, then now’s the time to do it. If you were not sure about what this would have meant tax-wise, then we hope things are clearer.
Have additional questions? Get in contact with the Heelan Associates team here.