This update was first published in the April 2012 UK edition of Accounting and Business magazine.
HMRC has stated that interest paid as part of a payment protection insurance compensation payment will be taxable. It has commented that banks and building societies are not obliged to deduct tax because the interest is not interest on a deposit. All other companies (including non-bank members of banking groups) have an obligation to deduct tax from interest when it is paid.
The interest payments will need to be declared.
Glenn Collins, head of technical advisory, ACCA UK