If you've reclaimed Payment Protection Insurance (PPI), then you could receive an unexpected tax bill.
Customers were awarded compensation plus 8% interest. It's this interest that's subject to tax.
A spokesman for HM Revenue & Customs told Radio 4's Money Box programme: "No tax is generally due on the repayment element of compensation paid to those mis-sold PPI. However, the additional interest is taxable - in line with other compensation claims."
They said that "Nobody should be worse off, as had the customer not purchased PPI, but kept that money in an interest-bearing account, the interest received would have been taxable.
"Customers should check with their PPI provider as to whether tax has been deducted at source."
HSBC, Barclays, Lloyds and the Co-operative Bank have said that they will not be deducting the tax at source. However, RBS/Natwest said it will. Loan companies are required to deduct the tax.
Reclaim PPI
Have you been mis-sold PPI? View our Reclaim PPI Guide.
