Martin Lewis: Had a PPI payout? If so, you can reclaim the tax on it

If you were a higher-rate taxpayer in the year you got your PPI payout, you should've been paying 40%. You may have done this through self-assessment; if not, let HM Revenue & Customs (HMRC) know.

Unfortunately you can't reclaim tax on payouts received before 6 April 2020

You can only reclaim PPI tax going back four tax years, as well as the current one. As we're currently in the 2024/25 tax year, that means the furthest you can claim back is the 2020/21 tax year. Therefore you can't reclaim tax on any PPI payouts received before 6 April 2020.

How to claim the tax back

If you believe you're owed tax back and haven't reclaimed it, the simple answer is to use the 'Claim a refund of income tax deducted from savings and investments' form R40 (or form R43 if living overseas), preferably filling in the online version.

Yet HMRC makes these forms pretty complicated, as it includes a whole host of other things too. So it may be a struggle for those who normally just pay tax via PAYE (ie, the payroll).

Here are a few tips to help. I'm assuming you are on PAYE, and have simple tax affairs…

• Don't miss the fact that at the top of the postal form, above the boxes, you must put your name and address and the tax year you got the PPI payout in.
  
  
• Where it says enter your agent's details, that just means your accountant if you have one. If not, leave it blank.
  
  
• There are official notes to help you fill in the R40, though sadly they're mostly written in officialese, and cover a huge range of eventualities.
  
  
• Box 1 is where you enter your personal details. Ensure these are correct, especially your national insurance number. Then check it again. Get this wrong and it is all a bit pointless.
  
  
• Box 2 is where you put the info about your income. This tells HMRC whether you were a non-taxpayer, basic rate or higher rate. Find that info on your old P45 or P60. If you don't have it, contact your (old) employer in the year you are claiming tax for.
  
  
• Box 3 is where you put the various details of the interest earned (ie, the statutory interest on PPI and interest on other savings).
  
  
• Box 3.2 is where you detail the tax taken off the statutory interest part of the PPI payout (and any other tax taken off at source, though this last measure is likely to be rare).
  
  
• Check through boxes 4 to 10. Most people won't have anything to fill in here – but check just in case, and fill them in if you do.
  
  
• Fill in the repayment instructions in box 11 and sign box 12.
  
  
• If you had more than one PPI payout and it was in a different tax year, you'll need to do a separate form for each.

I wish the form were simpler, but I hope this gives you a little help to get through it. If you're really, really struggling to fill the form in, you could just include a covering letter to HMRC, including your address and national insurance number saying something like:

"I was a basic-rate taxpayer in the 2021/22 tax year, and had £xx tax automatically taken off me at source for a PPI reclaim payout. That should have been part of my tax-free personal savings allowance, please can I reclaim it? I have tried to fill in the form as best I can."

Or call HMRC on 0300 200 3300 to discuss. I can't promise writing the letter will help, but it's better than doing nothing.

Higher or additional-rate taxpayers (and importantly those close to the threshold)

Higher or additional-rate taxpayers will need to declare the extra income (just the statutory interest, not the other parts of the refund) to HMRC to ensure they pay the correct tax. Of course, since April 2016 you’ve been able to earn £500 interest tax free, so there still may be tax to reclaim – but any interest over that will be charged at 40%.

Also, crucially, if you’re a basic-rate taxpayer whose earnings in the year of the PPI payout were close to the threshold, it’s worth noting the statutory interest could push you up into the higher-rate tax bracket – which would both reduce your personal savings allowance (from £1,000 interest a year to £500 interest) and mean you needed to pay 40% tax on the amount over and above that.

Contact your tax office or call the income tax helpline on 0300 200 3300 if you need more info.

Please use the comments section below or the forum to let me know how you get on: if you get money back, how easy it was and how much you got back.