If you have received a PPI or payday loan refund or any other type of affordability refund tax may have been deducted.
Since April 2016 non taxpayers and basic rate taxpayers can probably get some or all of this back from the HMRC!
This article looks at who can claim this tax back and how to do it.
Contents
Why was this taxed?
People often feel cross that they are charged tax on a refund. If you return something to a shop for a refund, you wouldn’t expect that to be taxed, it’s your own money you are getting back.
The taxman agrees – the refund part isn’t taxable.
But if 8% extra interest has been added to your refund, this is treated like interest you get on savings and so it’s taxable as HMRC explain here.
Most lenders deduct tax at the basic rate of 20% from the 8% interest and send this tax to the HMRC.
When they give you details, a line which says “interest gross” is what they worked out the 8% interest to be and a line which says “interest net” has had the 20% of tax taken off. This is an example:
Refund of Interest and Fees: £1,513.06
8% interest net: £385.02
Total settlement: £1,898.08
Tax details: 8% interest gross: £481.27
basic rate tax deduction: £96.25
Here the amount she was sent was £1,898.08. This was the refund plus the 8% interest (gross) less the basic rate tax deducted.
New rules about savings interest from 2016
From April 2016 a basic rate taxpayer is allowed to earn £1,000 in savings interest in a tax year without paying tax on it. So this will save you up to £200 in tax – 20% of £1,000.
This amount is £500 for a higher rate taxpayer – which gives the same refund as 40% of £500 is also £200.
This applies to the 8% interest you have got as part of your refund. This interest is still taxable – that’s why HMRC haven’t changed their page saying that it is taxable.
But the new tax-free band means that many people getting one of these refunds shouldn’t have to pay tax and can claim it back if the lender has deducted tax.
How much can you get back?
This depends on whether you pay income tax and at what rate.
The following are simple cases. Remember if you are close to the top end of a tax band, the 8% being added may push you over into the next rate tax band.
Luckily you don’t have to do the calculations, just tell the taxman the numbers and he will work out your refund.
If you have a low income or don’t pay income tax at all
If you have an income of less than £18,500 including the 8% on your refund, then all your refund should be tax-free. You should get a refund of all tax deducted.
(Why £18,500? It’s the 2019/20 personal allowance of £12,500 plus the “starting rate of tax on savings ” of £5,000 plus the £1,000 a basic rate taxpayer is allowed to receive from savings tax-free… see Income tax rates and personal allowances for details.)
If you are a basic rate taxpayer
If your income is over £18,500 and you pay basic rate tax, you can get back up to £200 of tax that was deducted.
BUT if you received any refunds including 8% interest with no tax deducted and the total amount of any interest you were paid came to over £200 you will have to pay tax on this – see below for some calculations.
If you are a higher rate taxpayer
The first £200 of any interest should be tax-free.
This is more complicated because the firm has deducted tax at 20% but you should really have paid 40%.
As a result:
- if you had less than £100 deducted, you can claim it all back (as if you double this you will still be under the £200 you can get tax free)
- if you had between £100 and £200 deducted, you can claim back some of this;
- if you had over £200 deducted you owe the taxman more. The extra is the same amount as the tax that has already been deducted LESS £200 which is your tax-free amount.
Complete an R40 form to claim tax deducted
Unless you complete a self assessment tax form (see below), use the R40 form to get some or all of this tax back.
You can apply online or complete a paper R40 form and post it to HMRC – links to these are here.
The online questions are the same as the form, so I’ll just cover using the paper form here.
You have to use a separate form for each tax year.
The current tax year runs from April 2019 to March 2020. Once the tax year has finished, you can claim for all refunds you were given in the last year and you also know how much other income you had during that year (from your P60 or P45) so it’s simple to fill in the form.
If you just had one refund and no other savings interest, you enter the details of your normal income from a job or benefits or a pension in boxes 2.1 to 2.9.
Then you put the details of your refund in boxes 3.1, 3.2 and 3.3.
As an example, take the refund already mentioned:
Refund of Interest and Fees: £1,513.06
8% interest net: £385.02
Total settlement: £1,898.08
Tax details: 8% interest gross: £481.27
basic rate tax deduction: £96.25
From these you need 3 figures for the R40 form. Ignore the refund element – that is not taxable. Instead focus on the 8% element – you want the gross figure (481.27), the net figure (385.02) and the tax deducted figure (96.25).
Here is how you put them into the R40 form:
If you had several refunds in this tax year with 8% interest included, add them up and put the totals in these boxes:
- DO include any refunds where 8% interest was added but the lender didn’t take any tax off;
- DO include any interest you received from taxable bank accounts;
- DON’T include the interest refunds or associated interest part of the refunds – these are not taxable;
- DON’T include any interest from tax-free savings accounts, eg ISAs or N&SI accounts which aren’t taxable.
You should get a refund within about 6 weeks! For the example being used, this should be the £96.25 tax that was deducted.
Don’t use R40 if you submit a self assessment form
The R40 form (and its online equivalent) is for use by people who don’t submit a self-assessment form.
If you are self-employed or have to submit a self assessment for some other reason, don’t use the R40 form, just enter the details of the 8% interest and tax deducted on your self-assessment form as “other savings income where tax has been deducted at source”. The refund you get will be the same.
You can also amend previous year’s self assessment forms if you have just found you can get the tax back from a PPI refund in 2017 say. See “If you need to change your return”.
FAQs on getting tax back on these claims
Do I have to wait for the end of the tax year?
You can make a claim for the current tax year using the R40 form:
- put an X in box 1.8 on the first page to say this is an interim claim;
- for the boxes in section 2, estimate what your income from work, benefits will be for the whole tax year, don’t just put in what you have received so far.
But if you may get more refunds, it’s best to wait until all your complaints have completed before putting in an interim claim.
What if you get more than £1,000 in added interest during the year?
When the 8% interest on your refunds in a tax year add up to more than £1,000, you do have to pay tax on the extra so you won’t get all the tax deducted back – unless you don’t pay tax at all.
Suppose you had a large refund including £1,400 of 8% interest. The lender will have deducted £280 in basic rate tax but you should get a refund of £200 back.
You don’t have to do the sums and say what the refund should be. Just put the details of the interest and tax deducted on the form and the taxman will do the calculation.
What if not all refunds had tax deducted?
Sometimes you may get a refund with 8% interest added but no tax deducted. These were still taxable. So they need to be included in the “under or over a 200 tax deducted” calculation. It is possible you may end up owing the tax man money in this case.
Example 1
PPI refund includes 8% interest of £800 and tax deducted £200
Payday loan refund includes 8% interest £600 and no tax deducted
Here you had a total taxable amount of 600 + 800 = 1400. 20% basic rate tax on this would be £350, but £200 is this should be tax-free so you should have paid tax of £150. £200 has been deducted for tax so you should get a rebate of 200-150 = £50
Example 2
1st payday loan refund includes 8% interest of £500 and tax deducted £150
2nd payday loan refund includes 8% interest £1600 and no tax deducted
Here you had a total taxable amount of 500 + 1600 = 2100. 20% basic rate tax on this would be £525, but £200 is this should be tax-free so you should have paid tax of £325. £150 has been deducted for tax but this isn’t enough, so you actually owe the taxman 325-150 = £175.
What to do if you can’t pay a tax bill
How 8% interest works for payday loan refunds
Unaffordable car finance – your options
Rob says
Just need a little advise please
Having received a large ppi payout of just over 40k last year. I notice that they took about 4k off for tax. I only work part time and earn 7k a year. Can i claim anything back? Thanks
Ash says
Do you have to claim your self, or if you pay comes from PAYE and tax and everything is calculated automatically and adjusted, will this automatically be returned?!
Thanks for your help.
Sara (Debt Camel) says
You have to claim yourself.
gillian says
hi rob(I work full time and pay tax) I just filled in form r40 on the government gateway website you have to do one form for each year within ten days I received cheques for over 3oo pound for the year 2017 to 2018 and one for over 300 pound for 2019 to 2020 the one I filled in for 2018 to 2019 I could not find all the amounts I had had refunded from payday firms(most of them now gone bust) so I rang the tax office and the lady said it was ok just to put the ones I could find details for and if I later found more details I had up to 4 years to claim I then received a letter for that year saying I had a refund of about 87 pound it was so easy to do took about ten minutes and well worth it
mr smith says
I’m a executor and got taxed on a PP claim, I then transferred the taxed PPI to the beneficiary, who claims the tax back, is it the executor or the beneficiary?
Sara (Debt Camel) says
Do you mean you paid tax or it was deducted from the payment you received?
mr smith says
The bank deducted it at source, so it was deducted from the payment I received, I’m self employed the beneficiary is retired. Also do I need to declare it on self assessment.
Sara (Debt Camel) says
See https://www.litrg.org.uk/tax-guides/bereavement/how-estate-taxed-during-administration which looks at how estates are taxed. That suggests to me (but I am NOT a tax expert so you cannot assume this is correct) that the tax deducted is from the estate, not from you or from the beneficiary and that it may not be possible to claim it back. You could talk to LITRG about this or phone up HMRC.
mr smith says
Thanks somebody asked the same question on this link but i cant get my head around the answer.
https://community.hmrc.gov.uk/forums/customerforums/pt/1fcbf3a3-060a-ea11-b265-00155d9c7f34
Sophi says
Hi Sara,
I had a measly refund of £23.53 from Wonga due to them going into administration.
And I have recently received £1274.29 from Myjar.
This is how they worked out the payment including the 8% stat interest etc…
“To put things right for you, we propose to refund the interest and charges you paid on the loans highlighted in yellow in the above table, totalling £1,110.72.
We will also include an additional 8% statutory interest calculated on the interest and charges that you paid to us. This amount is subject to 20% tax and this has been deducted, leaving a net interest payment of £163.57 due to you. This brings the total refundable amount to £1,274.29. A tax certificate regarding this payment is available should you require one.”
Do I have any chance at all on getting any tax back?
Many thnx
Sara (Debt Camel) says
so that looks as though the gross amount of 8% interest added was £204.46 and they took off 20% tax – 40.89 – to give net interest of £163.57.
If you are a basic rate taxpayer and you haven’t had any other refunds or saving interest this year, you can reclaim back this £40.89 on the R40 form.
Sophi says
Hi Sara,
Thanks for your help and knowledge.
I am a basic rate tax payer and get paid through PAYE.
No more refunds to claim, except QuickQuid now when they have their online portal going but of course it’s not going to be very much.
I do however with the savings interest have a LISA(Lifetime Isa) and I have put in the full amount this tax year could that go against me in tryna get back my £40.
Thank you :)
Sara (Debt Camel) says
LISAs are tax free – you don’t have to declare any interest there as it isn’t taxable. You aren’t going to get a QQ refund in the 19/20 tax year, it will be in next year.
Sophi says
Thanks for the info and guidance Sara, Very much appreciated! :)
Is it best to wait to the end of the tax year (which is obv very soon) then fill out the R40 form?
Sara (Debt Camel) says
at this point in the year yes, that seems like a good move. Then you can get your end of year income & tax from your P60.
Sophi says
Hi Sara,
Sorry to keep asking questions.
Should I include the amount Wonga had gave me or no?
Should I just put the amount from MyJar?
Thanks again
Sara (Debt Camel) says
Wonga – was this from the administrators or a refund before administration?
Sophi says
After they had gone into administration
Sara (Debt Camel) says
ok, in that case the refund you received from Wonga was all “return of interest” and didn’t include any 8% statutory interest. So it isn’t taxable and you shouldn’t include it on the R40 form.
Beth says
Sorry, I’m being a bit thick! What amounts are we putting in each boxes please? I’ve got the tax figure added up, is it the 8% interest figure we put in the first box or the full redress figure? Thanks in advance for your help.
Sara (Debt Camel) says
Hi Beth, I have added a bit to the article above to make this clearer.
Beth says
Thanks for your help Sara
Kerry Braxton says
I am self employed I have had 3 ppi payments made to me. One payment was collected by a company the others I did myself. Which from do I fill out and how as I finding things hard
Thanks
Kerry
Sara (Debt Camel) says
You need to find out for each of your refunds, how much tax was deducted. Ask for a tax certificate if you aren’t sure. The figures on that are what you will need to put on the r40 form as the article above says.
Julie says
Hello, I’m trying to get my head around how the refund has been calculated by Barclays and what to input into the R40 online form. Any help would be really appreciated. I’m not sure which figures go into 3.1, 3.2 & 3.3? Also do we have to include interest from a savings account for that tax year?
How your refund has been calculated:
Refund of PPI commission = £972.64
Interest on refunded commission=£1494.66
Statutory compensation=£1138.89
Refund of fees incurred due to high commission on PPI=£232.00
Income Tax deduction=£227.77
Total refund you are owed=£3610.42
Pauline says
Hi Julie
Just wondered if you managed to find the answer to your question, as I also have a Barclays refund and unsure of the figures to input.
Sara (Debt Camel) says
Statutory compensation=£1138.89 – goes in 3.3
Income Tax deduction=£227.77 goes in 3.2
3.1 is the 3.3 number minus the 3.2 number.
But yes you have to include any other savings interest during that tax year.
brenda says
i have recieved a ppi payout but was deducted tax before payout how do i get r40 form to fill out, i am retired and dont pay tax
Sara (Debt Camel) says
See this https://www.gov.uk/government/publications/income-tax-claim-for-repayment-of-tax-deducted-from-savings-and-investments-r40
Roly says
Am trying to do my tax return, so can claim back the tax from my claims. Am a little confused as to which option to go with to put it in.
Did you receive any interest, for example, from UK banks, UK building societies, UK unit trusts (or untaxed foreign interest up to £2,000)?
Or
Did you receive any other UK income, for example, employment lump sums, share schemes, life insurance gains?
I put it in originally as bank interest, but when I got my calculation at the end, it didn’t include all of the interest as part of my return – I only made £1800 profit this year, so thought I should be due to receive all of it back?
Can anyone help me out here? Thanks in advance.
Sara (Debt Camel) says
you are self employed? If so, you should enter the 8% interest and the tax deducted from that under “other savings income where tax has been deducted at source”.
Roly says
Yes, am self employed. The only options on the self assessment online are the 2 I quoted in my message. In order to get to the savings interest etc you have to pick the right section or it doesn’t show up as an option to put it in. I ended up putting it in with my bank interest in the end, as I couldn’t find anywhere with the wording you put above in the article or just now! It seemed to make the calculation work in the end! Thanks Sara
martin says
I’m a non tax payer and I have had ppi refund and had tax taken out. Will HMRC automatically pay this back to me?
Sara (Debt Camel) says
No, you need To reclaim it using the R40 form as the above article explains.
Jody says
Hi,
I have a question relating to wonga refunds. My total interest and fees was £731.10 and total compensatory interest was £475.14, total agreed was £1206.24 but following administration I received a total dividend of £52. Is there any tax to reclaim here?
Thanks, J
Sara (Debt Camel) says
No. The dividend paid is being treated as coming from the interest and fees part so no tax was deducted and there is therefore no tax to reclaim.
martin says
Hi,
I’m stuck on the R40 form. I have been living off my savings for 4 years now and haven’t worked so, section 2.1 – 2.9 is asking about my income. Do I just leave this blank?
Sara (Debt Camel) says
no, put in zero.
Presumably, you have some interest or dividends on your savings, so you need to include those in 3.1-3.4, together with the 8% portion of the refund.
Jason says
Hi my wife had ppi payments paid out in 2019/20 we filled a r40 form did the figures sent form of got a reply saying she has to put what tax year she is claiming what do we put she is on Benifits because she has parkinsons what do i put please surely they know exactly when they received the 20% of the companys are they just being funny please help as with things as they are we could do with the refund thanks in advance 🙂
Sara (Debt Camel) says
Sorry but your wife (or you helping her) needs to look at each PPI payout and work out which tax year it was in. Tax years start in April, so before April 2019 would be tax year 18-19, from April 19 to March 20 would did be tax year 19-20 and from April this year would be the current tax year 20-21.
So she may have to make 1,2 or possibly 3 claims, each for a separate tax year. That is the way these refunds work :(
Rene says
Hi all I am going to do my tax reclaiming on the government website but just wanted to know can I add documents as well. I know it usually takes 6 weeks when posting the form but is it quicker doing online with evidence which if able to upload. If so how long does it take for payment? thanks
Sara (Debt Camel) says
you don’t need to send any evidence unless they ask you.
Rene says
Thanks Sara does it get paid quicker if doing it online?
Sara (Debt Camel) says
I don’t know.
heath says
hi sara if i phone rbs for a copy of my ppi refund paper will they send it me
Sara (Debt Camel) says
what do you want and why?
heath says
Hi Sara I lost my paper work for ppi to work out how much tax was taken
Sara (Debt Camel) says
ok, then ask the bank for a copy.
Nicola says
I am so confused. Submitted r40 back in April 20 for tax year 19/20. It worked out roughly £778 I was due back (due to not paying tax) I rang to query it at the end of April and was told I would receive a letter. I also spoke with online chat who said the R40 was under review. As I heard nothing else I assumed I wasn’t entitiled to anything.. fast forward to 14th May I logged on my tax account and it states they have sent me a cheque for over £11,000. This cannot be correct? I’m going to ring them on Monday but really worried I’ve messed up somewhere and am going to get in to trouble.
Sara (Debt Camel) says
gosh. I think phoning them is a good idea!
Nicola says
Yes me too. Don’t understand how they’ve made this big of a mistake, and it’s not been picked up by their systems.
Lynne Goddard says
Hi Sara.
I had a payout of £10500 in August 2017. I shredded the paper work and have asked Wonga for a copy of the tax paid or a letter with the information.
I understand they have gone into administration. I have filled in an R40.
Can I receive a tax refund without this information? X
Sara (Debt Camel) says
No, you need to know how much tax, if any, was deducted. There is no way to guess this.
Mark Hodder says
Hi Sara,
I know this question has been asked before but I have 4 payouts each with different wording. I think I have matched each figure up with each other on my paper work but i’m still unsure of the figures that go into each box.
example:
Refund of payments made by you for PPI cover – £2572.38
Refund of interest charged on PPI premiums and fees – £1131.43
8% interest statutory compensation – £2649.09
Refund of fees incurred due to PPI – £168
Income tax Deductions – £529.81
Total – £5991.09
Sorry to ask but which of these go into which of the boxes 3.1 – 3.2 and 3.3
Thanks
Sara (Debt Camel) says
Refund of payments made by you for PPI cover – £2572.38
Refund of interest charged on PPI premiums and fees – £1131.43
8% interest statutory compensation – £2649.09 – THIS IS THE GROSS INTEREST for box 3.3
Refund of fees incurred due to PPI – £168
Income tax Deductions – £529.81 – THIS IS THE TAX DEDUCTED for box 3.2
Total – £5991.09
3.1 is for the NET INTEREST – that is the gross interest minus the tax taken off.
AMathews says
I had a PPI refund of £972.40 from the 13th of March 2020 and I have to declare some inheritance from my late aunt. The amount was £3000 and I’m a higher rate tax payer. Please explain me how to record this in my self assessment tax return and how this works
Sara (Debt Camel) says
The article above explains what to do about the PPI refund – you will need to know how much tax was deducted and how much 8% statutory interest was paid.
I cannot advise you on on how to complete your tax form for an inheritance, I suggest you take professional advice if you are unsure.
Amathews says
Thank you 😊
Liz says
Hi Everyone
Hope your all staying safe. A little bit of help please I am getting a refund for irresponsible lending from provident and have another claim for mutual loans outstanding at this present time. When is it best to claim the tax back for these. Should I wait till the end of the tax year?
Leanne Thorpe says
I can’t seem to get my head round how to work out what to claim back on the R40 form. Can someone help? I had £27119.99 ppi claim back and then paid the ppi company their commission from this. I just have no idea what to put in the r40 form
Sara (Debt Camel) says
You need to find out how much of that large amount was the extra 8% statutory interest added and how much tax was deducted. As the PPI firm if you weren’t sent this information.
Eileen says
Hi, had a PPI payout from Barclays last year where tax was deducted. The PPI policy was in joint name with my husband & paid back into our joint bank account. My husband pays tax at the basic rate & I don’t pay tax. Who should claim the tax refund on this PPI payout?
Thanks.
Sara (Debt Camel) says
you should each claim back half.
Eileen says
Thanks. Do we claim back half the amount of PPI & half the interest or just half the interest. Sorry if that’s a stupid question!!!
Sara (Debt Camel) says
The only part that is taxable is the extra 8% interest added on., not the PPI itself. You need to give the figures for the 8% interest and for the tax deducted,
Jodie says
Hi could someone help me? When I received my ppi payouts a few years ago I was recieving child and working tax credits. In reading these comments it looks like I should have declared the ppi payments ? My question now is can I claim the tax back on one from two years ago or will this flag up that I haven’t declared them and will I end up owing them money ? Sorry if it seems like a daft question could someone please reply with the answers thanks x
Sara (Debt Camel) says
This problem is only for tax credits, not other sorts of means-tested benefits where refund are treated as capital not income. And it is only the 8% part of the refund that matters. The rest is a refund of your own money, not income.
My question now is can I claim the tax back on one from two years ago or will this flag up that I haven’t declared them and will I end up owing them money ?
I haven’t heard of people having this sort of problem because they make a tax claim, but I suppose it is possible.
Jodie says
So should be fine to go ahead then 😬
Joe says
Help! I think i may have complicated matters by submitting R40 to HMRC.
I had 3 redress upto April 2020 and completed form r40 as tax was taken at my 20% rate. ( earn £21k before tax and married tax)
Refund 1 was £4400 tax paid
Refund 2 was £1100 tax paid
Refund 3 was £3200 tax paid
Now hmrc have written to me saying i need to complete a self assesment as interest i have been paid is over £10k
Sara (Debt Camel) says
it’s normal to be asked to complete a self assessment if your savings income is over 10k. Next year when it isn’t, you can ask HMRC is you can stop completing a self assessment.
joe says
thanks – will I be liable to pay more tax though – that’s what worries me.
Sara (Debt Camel) says
You can only have to pay more tax if the savings income takes you into the higher rate tax bracket (see https://www.gov.uk/income-tax-rates for bands) OR if some of your PPI refunds didn’t deduct any tax (that would be unusual).
Simon says
Good morning Sara,
I received a PPI refund from Barclays recently, I am in receipt of UC from HMRC and now have to advise them of this PPI refund, is it the refund of interest amount that I was charged that I have to advise UC or the Statutory Compensation amount which is higher than the refund of interest. Which bit is considered income and then is any of it considered Capital and do I need to advise this also?
Your help would be appreciated.
Thank you
Sara (Debt Camel) says
For the purposes of UC, none of it is income, it is all capital. Talk to a debt adviser eg your local citizens Advice, if you aren’t clear about the implications for UC.
For income tax, the statutory compensation is treated as savings income.