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A new article by the BBC talks about how those who successfully complete PPI reclaims may be inadvertently underpaying tax from mis-sold PPI compensation. Petitions Direct offers a straight answer on the situation with Payment Protection Insurance and tax.

It has been confirmed by HMRC that no tax is levied on the compensation that PPI reclaim cases receive. However you do have to pay tax on any additional interest that is paid on top of the PPI reclaims. This is due to the fact that the compensation is a refund of money that rightfully is already yours, however interest would in most cases cause you to receive more in mis-sold PPI compensation than you originally paid and therefore as extra income is taxable if applicable to your circumstances.

Always check if your mis-sold PPI compensation has however had the tax already deducted, there’s no need to pay it twice or worse the other way round get stuck with an unexpected tax bill.

You do have to pay tax on any additional interest that is paid on top of the PPI reclaims

While HMRC are simply following the rules set out for taxation there have been calls from several places for the rules to be changed as the treasury should not benefit from a tax windfall in cases likes these. This however remains to be seen.