PPI (Payment Protection Insurance) is a type of insurance that was sold alongside credit cards, mortgages and other types of credit including car finance. The amount you receive back in a PPI claim is comprised of three main elements:

1. A refund of the PPI you paid.
2. If the bank added an extra loan to your original loan just to pay for the PPI, you get back any interest you were charged on this extra loan.
3. You get statutory interest (at 8% a year, but not compounded) on the total of both those sums, for each year since you got the PPI.

Of these, only the third element is liable to be taxed (usually at 20%). This is usually shown on the pay-out statement. The objective of PPI was to cover credit repayments in circumstances where you could not make them yourself. For example, if you were insured with PPI and you became ill or had an accident meaning you could no longer work then you would have been able to make a claim. For every PPI pay-out there would have been tax deducted automatically which is usually at a rate of 20% before you received your payment. If you are a non-taxpayer then you have the right to claim this back in full from the HMRC. However, in 2016 the ‘Personal Savings Allowance’ (PSA) was introduced which simplified things for taxpayers to receive what they are owed. This allowed taxpayers to earn up to £1,000 a year tax-free on their savings which includes the statutory interest paid on PPI claims. PPI pay outs are taxed as a ‘lump sum’ payment meaning this is at a simple 20%, for every £100 of statutory interest you earn you pay 20% in tax. The PSA introduced in 2016 further simplifies this into categories for every taxpayer, this can be seen below:
Basic 20% rate taxpayers (earning c. £12,500-£50,000) can earn £1,000 in interest a year tax-free. Higher 40% rate taxpayers (earning c. £50,000-£150,000) can earn £500 in interest a year tax-free. Top 45% rate taxpayers (earning over £150,000) do not get a personal savings allowance.
If you have not earned over your Personal Savings Allowance in the same year as you managed to get your PPI repayment, then there is a very high chance that you will be able to receive a PPI Tax Rebate. Richmond Carter can help you claim back the tax today!