The government has come under fire for forcing victims of the Payment Protection Insurance (PPI) scandal to pay tax on their refunds.

The typical tax bill will be £50, but those who were awarded higher payouts now owe £1,500, it has emerged.

PPI, sold with credit cards, is designed to cover repayments if the borrower becomes too sick to work or loses their job, but policies were sold to millions who were not eligible to claim, and many customers didn’t even realise they were paying for the insurance.

In April, the High Court ruled that banks must compensate each affected customer by refunding up to six years’ worth of payments tax-free.

But it has emerged that HM Revenue & Customs (HMRC) will tax the 8% interest which every victim of PPI is due, a move that consumer groups have heavily criticised.

The average payout is set at £1,000, which will incur £240 worth of interest. If the interest is taxed at the basic rate of 20%, the Treasury will earn £48 from every affected customer, and those on higher rates of tax will pay more.

Marc Gander of the Consumer Action Group called the taxation “another twist of the knife for long-suffering bank customers”.

HMRC is urging customers to get in touch if they are unsure how much they owe and a spokesman said: “No tax is generally due on the repayment element of compensation paid to those mis-sold PPI.

“However, the additional interest is taxable – in line with other compensation claims. Nobody should be worse off, as had the customer not purchased PPI, but kept that money in an interest-bearing account, the interest received would have been taxable.”

“Making a refund application against a bank or other large financial institution can be a daunting prospect, which is why it is much better to seek help from an organisation like Brunel Franklin, rather than struggle on and be left to try and work out the details for yourself. We operate a no-win-no-fee service and there is nothing to pay until your case is successfully won and the vendor has paid out.”

Learn more about PPI refunds and find out if you could apply for a refund today! Visit the website www.brunelfranklin.com or call Brunel Franklin, free, on 0800 051 54 51.