Tax sting in the PPI refund tale

The rules HMRC applies are reasonably straightforward: if your claim for PPI compensation is upheld, you will get a refund of premiums paid, the interest you have paid on the premium if it was added to your loan, plus simple interest at 8%.

While the principle is to return you to the position you would have been in if you had never taken out the PPI policy, the 8% interest is taxable and must be declared to HMRC by including it on your self assessment tax return.

HMRC is very likely to have information on who has received a repayment and interest. Thus, omitting PPI interest payments from your return by accident or design is not worth the repercussions of an enquiry from HMRC.