However, are there any tax implications to be aware of if you make a successful claim?
HMRC have confirmed that generall no tax is due on the repayment element of premiums or the refund of related interest paid to those who have been mis-sold PPI. However, the 'additional 8% interest' is taxable.
So how is the tax accounted for?
The matter is not clear cut as this interest may or may not have had the 20% basic rate (BR) tax deducted already. The position depends on the type of company making the interest payment. If banks and building societies are paying the interest there is no obligation on them to deduct BR tax because it is not interest on a deposit. There are also specific exemptions for banks and building socities from the need to deduct tax from yearly interest. The outcome is that some banks are deducting BR tax on the 8% gross interest and some are not.
Other companies generally do not have to deduct BR tax and they then have a statutory requirement to advise the customer when making the payment that BR tax has been deducted and the gross and net amounts of interest.
Any recipient therefore needs to carefully check their tax position as action may be required. The correct tax position will depend on their individual circumstances but in general the position will be as follows:
