(Last updated: 5th August 2021)

The deadline for clawing back any Payment Protection Insurance payments you made for wrongly sold policies expired back on the 29th of August 2019. Hopefully, you got your claims filed in time and got your cash back – but there’s a chance you could still be owed more, even in 2021.

Are you Owed Tax?

A lot of people don’t realise that part of their PPI payout is taxed at source automatically. That means, if you weren’t eligible to pay tax for the year, you probably got short-changed.

A quick guide to PPI

Payment Protection Insurance policies were supposed to be a way of making sure you didn’t get in trouble paying off things like loans, credit cards and mortgages. If you got sick or lost your job, for instance, the policy would keep up your payments until you were back on your feet. They actually weren’t a bad idea – in theory, at least. The trouble was, PPI schemes turned out to be a pretty big money-spinner, so companies were pushing their staff to ram them down customers’ throats at every opportunity, whether they needed them or not. Quite a few people never even realised they’d signed up for PPI, because it was buried too deeply in the small print of their agreements. Others were sold policies they could never use, since they didn’t qualify (if they were self-employed, for instance).

Eventually, the authorities caught on to what was happening and dragged the PPI sellers back into line - kicking and screaming all the way in some cases. Single-premium PPI policies were banned outright in 2009, and lenders were forced to start taking complaints seriously. This meant a lot of people getting payouts for wrongly sold PPI agreements.

What got taxed?

Obviously, since this is all money you shouldn’t have paid in the first place, your refunded PPI payments themselves aren’t taxed. However, you’re not just getting those payments back. You’re also getting some interest on them, to try and put you back where you should’ve been financially by now if you hadn’t been wrongly charged for PPI. So, on top of your actual payments, you’re getting:

  • Interest on any additional loans that might have been dumped on top of your existing ones to fund your PPI payments.
  • Another 8% per year in statutory interest.

It’s that last part that’s eligible to be taxed. It’s treated the same as any savings interest you might be getting – and here’s where things get interesting.

Since 2016, most people have been able to earn up to £1,000 a year in interest tax-free (the Personal Savings Allowance). That includes the 8% interest on your PPI payout. People earning over £50,000 have a lower cap of £500 tax-free, while anyone making over £150,000 gets nothing. The thing is, most of those PPI payouts have still been getting taxed at the Basic Rate of 20%, even if they shouldn’t have been. That means you could still be owed money even if you were making enough to pay tax.

The tax you pay is worked out based on the year you got your payout, so if you were earning less than your tax-free Personal Allowance then, you shouldn’t have been taxed on your payout at all. If you got your payout after April the 6th 2016, you should also have got the benefit of your Personal Savings Allowance.

How to Claim a Refund

Like other types of tax rebate, you can only claim back what you’re owed for 4-years. However, the taxman hasn’t done a great job letting people know that they can claim, or explaining how to do it using the R40 form.

Get Help with the R40 Form

There’s an R40 form on the HMRC website here to get you started. For some people though the thought of dealing with HMRC, forms and numbers along with the fear of getting something wrong puts people off claiming back what's rightfully theirs. But as always, RIFT has your back. Get in touch and we’ll get the wheels on your PPI payout tax refund rolling. Just one more reason why you’re always better off with RIFT.

RIFT are the UK's leading tax refund and tax return experts who've been in the industry since 1999.  Use our tax rebate calculator to get an instant estimate how much cash you could be owed back from HMRC.