UK Tax Questions? Ask a UK Tax Advisor for answers ASAP
Only the interest is taxable, not the PPI repayment. If you think you should not pay tax for tax year during which the PPI refund was issued, complete a form R40, take a copy and send it to the tax office with supporting documentation which you should also retain copies of.
I hope this helps but let me know if you have any further questions.
You can simply print the pages from here.
Send the complete form to the address here.
Call the number here for the R40.