Often the tax treatment of interest on PPI refunds is overlooked. Therefore HMRC have now published a note which gives basic advice on the taxation of interest paid on PPI compensation payments.
The note does not however include advice on the reporting requirements of companies to HMRC for the interest paid and tax deducted or how the tax deducted should be paid over to HMRC.
Generally no tax is due on the repayment element of compensation paid to those mis-sold PPI. However, the additional interest is taxable. The interest may have tax deducted depending on the type of company making the payment of the interest. And the taxpayer’s final tax position will depend on their individual circumstances.