What is mis-sold PPI?

Payment Protection Insurance (PPI) was a policy to cover your repayments if you lost your job or couldn't work. It was mis-sold to millions of people by banks and building societies.

Lots of people got money back, which included the amount they originally paid and any interest for each year after they took out the PPI. That interest is taxed at the basic 20% rate. This means that 20 tax is deducted automatically by the lender for every 100 of statutory interest earned.

Officially called statutory interest, it's based on the Late Payment of Commercial Debts (Interest) Act 1998. If you or a business is late paying for something, it means providers can charge interest at 8%. They add this on top of the Bank of England base rate, which can change.

Why can some people reclaim the tax back?

Lenders usually take income tax from any PPI compensation payouts. But not everyone should be paying that tax.

That's because on 6 April, 2016 the Personal Savings Allowance (PSA) came into effect. It means 20% rate taxpayers can earn up to 1,000 a year of savings interest tax-free. 40% rate taxpayers can earn 500.

If the interest earned from your savings and PPI interest is less than your PSA, you can claim all the tax back. But, if your savings and any interest is more than your PSA, you pay tax on the extra amount.

If you're a 20% rate taxpayer, have 500 in savings and get a PPI payout of 650, you have 1,150. This is more than your PSA and you'll be taxed on the extra 150, which amounts to 30.

Can you reclaim tax on payouts before 6 April 2016?

No. That's because the PSA wasn't int effect before that. But, if for example, you took out a PPI policy in 2010 and were given a payout in 2016, you would be taxed in the year you received it. This means you could claim the tax back.

How to file a claim

If you think you might be eligible for a tax refund, fill out the government's R40 form (R43 if living overseas). You can also download a printable version and send it by post.