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Tax Glossary - HMRC
Is the interest on a tax rebate taxable?
If you are employed and you have paid too much tax, you may receive a tax rebate through the PAYE system. For example, this may happen if you have more than one job, or if you have changed jobs and been placed on an emergency tax code. There are many other possible changes in circumstances that may affect your tax code and the amount of tax you pay.
In some cases HMRC will contact your employer and you will receive your tax rebate in your wages, via the PAYE system. If this is the case, you may receive a small amount of interest in addition to the value of the tax you have overpaid. This interest counts as non-taxable income. You can only receive a tax rebate through the PAYE system for tax you have overpaid in the last four tax years. For other overpayments, you may be required to contact HMRC directly and provide relevant documents and information.