Many victims of miss-sold Payment Protection Insurance are unaware that they need to declare any interest they received as part of their settlement on their tax return. HMRC have commented:
"The interest may or may not have had tax already deducted depending on the type of company making the payment of the interest.
"If banks and building societies are paying the interest then there is no obligation on them to deduct tax because the interest is not interest on a deposit and there are specific exemptions for banks and building societies from the need to deduct tax from yearly interest.
"All other companies have an obligation to deduct tax from yearly interest when it is paid. If a company does deduct tax then there is a statutory requirement that it advises the customer when making the payment that tax has been deducted and the gross and net amounts of interest."
So if you have received compensation, particularly during the tax year to 5 April 2013, make sure you advise HMRC asap – the deadline for notification was 31 January 2014.
