PPI refund interest

[PurpleMoonlight]

A colleague has reclaimed some PPI, and the bank have kindly deducted tax from the interest element.

Does this interest count towards the £1000 tax free allowance so she will be able to reclaim it from HMRC?

[Jockman]

Were they right to deduct the interest?

[PurpleMoonlight]

I've done a bit of research since posting.

I think tax should be deducted from the interest element because it isn't savings interest, but the interest payment is covered by the personal savings allowance so it may be possible to reclaim all/some of the tax deducted.