Which tax year does car finance compensation count in?

The interest in car finance compensation counts in the tax year it is paid to you. A UK tax year runs from 6 April to 5 April, so a payment on 20 May 2027 falls in the 2027/28 tax year, and a payment on 20 March 2027 falls in 2026/27. It doesn’t matter when you took out the finance, when you complained or when the lender agreed to pay.

Why the tax year matters

The tax year decides three things.

Your allowances. The Personal Savings Allowance and the starting rate for savings apply to a whole tax year (GOV.UK). Your income in that year sets your tax band, and so how big your allowance is. A year with lower earnings can mean a bigger allowance.

The tax rates. Finance Act 2026 raises tax on savings income by 2 percentage points from 6 April 2027: 22% for basic-rate taxpayers, 42% for higher-rate and 47% for additional-rate (GOV.UK). Tax withheld from interest moves to the new savings basic rate, so lenders will deduct 22% rather than 20% on payments from that date (GOV.UK technical note).

The deadline. You can claim back tax deducted from savings interest for the current tax year and the previous four, with a separate claim for each year (GOV.UK).

When scheme payouts are likely to land

The FCA has confirmed that the legal challenges to its car finance compensation scheme will be heard from 16 to 26 February 2027, with a judgment expected in the months after that. Until the legal process ends, lenders do not have to pay compensation under the scheme (FCA).

That makes it likely that most scheme payouts will fall in the 2027/28 tax year or later. Our car finance compensation scheme latest update tracks the timetable.

How the rates compare

	Payment up to 5 April 2027	Payment from 6 April 2027
Tax the lender deducts from the interest	20%	22%
Basic-rate tax on interest above the allowance	20%	22%
Higher-rate tax on interest above the allowance	40%	42%
Personal Savings Allowance	£1,000 basic, £500 higher	Unchanged
Starting rate for savings	Up to £5,000	Unchanged

For someone whose compensation interest is within their allowances, the change means slightly more to reclaim, because the lender takes 22% instead of 20%. For a higher-rate taxpayer with a large payout, the higher rate above the allowance can mean less back, or more to pay.

Deadlines by tax year

If you were paid between	Tax year	Claim by
6 April 2026 and 5 April 2027	2026/27	5 April 2031
6 April 2027 and 5 April 2028	2027/28	5 April 2032
6 April 2028 and 5 April 2029	2028/29	5 April 2033

More than one payout

If you had compensation for more than one agreement, each payout counts in the tax year it was paid. Payouts in the same year are added together and share one allowance. Payouts in different years are separate claims, each with its own allowance. Our guide to multiple PCP or HP payouts works through examples.

How to check your tax year

Look for the payment date on your lender’s letter, or the date the money reached your bank account. Our guide on how to read your car finance compensation letter shows where to find it.

Then use our car finance tax rebate calculator to get a rough estimate. If you claim with us, we confirm the tax year from your letter, apply the right allowances and rates, and submit the claim to HMRC as your agent.