How much tax was deducted from my PPI payment?

Why was my PPI payment taxed?

If you have received a PPI or payday loan refund or any other type of affordability refund, tax may have been deducted.

Most banks/lenders will have added an extra 8% interest to your refund, this is treated like interest you get on savings and so it is taxable.

Most lenders deduct tax at the basic rate of 20% from the 8% interest and send this tax to the HMRC.  When they give you details, a line that says “interest gross” is what they worked out the 8% interest to be and a line that says “interest net” has had the 20% of tax taken off.  This is an example:

Refund of Interest and Fees: £1,513.06

8% interest net: £385.02

Total settlement: £1,898.08

Tax details: 8% interest gross: £481.27

Basic rate tax deduction: £96.25

It is this tax deduction of £96.25 most people can reclaim from HMRC.


How do I find the tax deducted figure from my bank/lender final response letter?

If your original PPI claim was successful, you would have received a final response letter (FRL) from your bank/lender prior to your refund payment.

This FRL would have included a breakdown of your payment including any tax deducted from your 8% statutory interest.

It is this income tax deduction figure we require.

If you no longer have your Final Response Letter, you can request a copy from your bank or lender which they are legally obliged to provide you.

See example FRL letters below, which show where to find this tax deducted figure.