Your car finance compensation tax deduction certificate

A tax deduction certificate is the written statement a lender gives you to show the tax it took off the interest in your car finance compensation. It is the evidence HMRC needs before it repays that tax. Some lenders put the figures in the compensation letter itself; others send a separate certificate or statement.

What the certificate shows

Under section 975 of the Income Tax Act 2007, anyone who deducts income tax from a payment of interest must, if you ask in writing, give you a written statement showing (legislation.gov.uk):

• the gross amount of the interest
• the amount of tax deducted
• the amount actually paid to you

HMRC’s manual describes this as a certificate the payer must provide on request (HMRC SAIM9117). The payment date matters too, because it decides which tax year the interest counts in.

Is it the same as an R185?

People often search for an “R185”. HMRC publishes a form called R185, a certificate of deduction of income tax that payers can use to confirm tax was taken off interest (GOV.UK). There are also separate R185 forms for income from trusts and estates.

Lenders don’t have to use HMRC’s form. A letter or statement on the lender’s own paper, showing the gross interest, the tax deducted and the net amount, is just as valid.

Why HMRC needs it

To reclaim tax deducted from interest, HMRC asks for evidence from the company that paid you showing the gross interest, the tax deducted and the net interest. The guidance says this document must be sent by post, even if the claim itself is started online (GOV.UK). Without it, HMRC can’t confirm the tax was paid, and the claim stalls.

What the Financial Ombudsman says

The Financial Ombudsman Service says that when a business pays interest on compensation, it should deduct basic-rate tax, pay it to HMRC and give you a tax deduction certificate. If it hasn’t, you’ll need to ask for one. It adds that the basic rate may not be the right rate for you, and that you can usually claim back the tax deducted (Financial Ombudsman).

If you don’t have one

1. Check your compensation letter first. If it shows the interest, the tax deducted and the amount paid, that may be all the evidence needed. Our guide to reading your compensation letter shows where to look.
2. Ask the lender in writing. The legal right to a statement applies when you request it in writing.
3. Keep the original. HMRC may need the document itself, so keep a copy for your records too.

How we use it

When you claim with us, we check your letter or certificate, confirm the figures and the tax year, and send the evidence to HMRC with your claim as your agent. If you don’t have a certificate, we’ll tell you what’s needed. You can also claim from HMRC yourself. See how it works, or use the rebate calculator for an estimate.