Tax Reclaim

When a complaint for mis-sold PPI or a mis-sold PBA is upheld, the provider must refund you the premiums paid plus statutory 8% interest for each year you held the policy or account. This is designed to put you back in the financial position you would have been in had you not had the policy in the first place. This 8% interest is considered savings interest and is therefore subject to tax like money you earn from a normal savings account.

In 2016 the government introduced the Personal Savings Allowance (PSA), allowing basic rate taxpayers the ability to earn up to £1,000 in savings interest without paying any tax. As most people do not earn anywhere near this amount through standard savings products, the PSA typically covers the interest that was added as part of their PPI or PBA compensation and as such should not have been taxed.

The same principle still applies, but the limit on what you can earn in savings interest before paying tax is £500 rather than £1,000. Top rate taxpayers do not have a PSA. 

If you were a non-taxpayer at the time you received your compensation offer you are entitled to claim back 100% of the tax deducted from your offer, as long as that amount would not move you up into the basic rate tax bracket. 

HMRC rules state you can only claim back tax from four years ago, so the clock started as soon as you received your offer of compensation.

A simple example for a basic rate taxpayer is someone whose PPI offer included £1,000 of statutory interest and did not earn any other interest from elsewhere in that year. The £1,000 they received from their PPI interest does not exceed their PSA and so they should not have had the 20% tax deducted and are due all of it back, which would be £200.

An example for a higher rate taxpayer would be someone whose PBA offer included £500 of statutory interest and did not earn any other interest from elsewhere in that year. The £500 they received from their PBA interest does not exceed their PSA and so they should not have had the 20% tax deducted and are due all of it back, which would be £100.

Claims are processed by HMRC, so are always at the mercy of their workloads. Currently we are aware of very high volumes of submissions and staff limitations at HMRC, so claims are taking longer than usual but the sooner you put your claim in the sooner you can expect your cheque if your claim is successful.

Unfortunately we no longer offer tax reclaim as a service, but would encourage you to pursue a claim yourself if you received a PPI or PBA offer after April 2020. To find out more about the process with HMRC, click here: HMRC Tax Reclaim