Guides
Plain-English guides to the tax on car finance compensation: who can reclaim it, how the R40 works, and what to do in less common situations.
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What is an R40 form, and why does it matter for car finance compensation?
The R40 is HMRC’s form for reclaiming income tax deducted from savings interest. It’s how most people get back tax a lender took from the interest in their car finance compensation.
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Non-taxpayers: can you still claim?
If your income is below the Personal Allowance, you usually owe no tax on the interest in car finance compensation. The 20% the lender deducted can normally be reclaimed in full.
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Higher-rate taxpayers and car finance compensation tax
Higher-rate taxpayers get a £500 Personal Savings Allowance. Whether you can reclaim any of the tax on your compensation interest depends on how much was deducted.
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Tax rebates on hire purchase (HP) compensation
Compensation for a hire purchase agreement is taxed in exactly the same way as compensation for PCP. Here is how to find the interest and tax on your lender’s letter, and what you might be owed.
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PCP vs HP: what’s the difference for your tax rebate?
PCP and HP work differently as ways to pay for a car, but both can lead to compensation. Once you’re paid, the tax on the interest is treated in exactly the same way.
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Multiple PCP or HP payouts
If you had compensation for more than one car finance agreement, the tax year each payout landed in decides how they’re claimed. Payouts in the same tax year go on one claim. Payouts in different years are separate claims.
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What is a discretionary commission arrangement (DCA)?
A discretionary commission arrangement let a car dealer or broker set your interest rate, and earn more commission the higher it was. The FCA banned them from 28 January 2021.
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How to find your car finance lender
The company that financed your car isn’t always the dealer or the car maker. Old paperwork, bank statements, your free statutory credit report and the dealer can all help you find out who it was.
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Claiming for someone who has died
Car finance compensation can still be paid when the customer has died. Whether any tax on the interest can be reclaimed depends on whether the money was paid before or after their death.
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