Tax on compensation received for complaint

littlemoney

If you make a complaint to a financial institution which they uphold and pay compensation in recognition they haven't performed as expected.

Is the amount received taxable?

Thank you

MattMattMattUK

What was the payment specifically for?

littlemoney

It was a complaint about the service is received which wasn't up to expected standard

Isthisforreal99

Unless there was an element of interest included in the payment then it's highly unlikely it will be taxable.

jackthelab

Depends on the category of the compensation. If it's a payment for distress/inconvenience then no. Same with a refund of charges or costs you've incurred as a result of the bank's error.

If you've not had access to funds (e.g. money from a matured bond was somehow sent to the wrong place), then the bank should consider paying you interest for the time that you didn't have access to the funds. That money is classed as interest (as it would be for a savings account) so is part of your Personal Savings Allowance and overall adjusted income - the bank should report it to HMRC. So this interest is potentially taxable.

The bank's final response letter should be clear on what payments they're making to you and how they categories them to help you work it out. I've always seen banks explain taxable payments in their letters, but not sure if that's a rule or just good practice.

littlemoney

Thanks for the information

No interest was lost. Just distress and inconvenience.

One occasion I was 1hour on the phone being passed from one person to another and the only solution provided was to drive over 100 miles to prove my identity. The local office had been closed.

The investigation revealed had passed the necessary security checks with the first person I spoke to but was still denied access.

The one letter I can find makes no reference to it being taxable so looks like it's OK.