Tax on PPI Compensation

BIG WAL

One of my clients submitted her own claims for PPI compensation, going back many years. A credit
card company has agreed to pay out over £30K.

Of this £17k is "interest associated with PPI premiums". A further £3.5k is total taxable
interest at 8% - how they work it out isn't clear.

Another one - a bank - is similar, but for just over £4k. The letter from the bank says this may be
taxable subject to personal tax status.

I'm pretty sure the compensation itself isn't subject to tax, but don't know about the interest. What
they don't make clear is how the interest is accrued by tax years. Although client is in the 40% bracket,she wasn't always so.

Can anyone advise ?

JodieR

The interest is subject to tax, although in most cases it's paid gross and therefore does need to be declared on the tax return. there's more info here: http://www.hmrc.gov.uk/manuals/saimmanual/saim2105.htm
I don't know about relating the interest back to a previous year in which the tax payer wasn't in the 40% bracket, I would have thought that it needs declaring in the year in which it was received, which is the way in which normal bank interest is treated (ie if your bank pays interest for March 2012 on 10/04/2012 then it will be declared on the 2012/13 tax return, not 2011/12 when it was 'earned')