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This was the refund plus the 8% interest (gross) less the basic rate tax deducted.
From April 2016 a basic rate taxpayer is allowed to earn £1,000 in savings interest in a tax year without paying tax on it.
Some lenders and banks don’t deduct any tax, they leave you to sort it out with the tax man.
But many deduct tax at the basic rate of 20% from the 8% interest and send this tax to the HMRC.
When they give you details, a line which says “interest gross” is what they worked out the 8% interest to be and a line which says “interest net” has had the 20% of tax taken off.
This is an example of a payday loan refund one reader received from Wonga – it works the same way for PPI refunds, bank charges refunds and all similar sorts of compensation: Refund of Interest and Fees: £1,513.06 8% interest net: £385.02 Total settlement: £1,898.08 Tax details: 8% interest gross: £481.27 basic rate tax deduction: £96.25 Here the amount she was sent was £1,898.08.
The tax man agrees – the refund part isn’t taxable.
This depends on whether you pay income tax and at what rate.People often feel cross that they are charged tax on a refund.If you return something to a shop for a refund, you wouldn’t expect that to be taxed, it’s your own money you are getting back.The picture shows what this would look like for the Wonga refund example above.
If you had several refunds with 8% interest included, add them up and put the totals in these boxes: You should get a refund within about 6 weeks!As a result: To get this tax back, you can apply online or complete an R40 form and post it to HMRC – links to these are here.The online questions are the same as the form, so I’ll just cover using the paper form here. The current tax year runs from April 2018 to March 2019.If you have received a PPI or payday loan refund since April 2016 where tax has been deducted, you can probably get some or all of this back from the tax man!