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.