Interest: credit card and PPI still running
Example where the credit card and PPI are still in existence
Ms K has a PPI policy on her credit card even though she pays her full credit card balance every month. She complained that the PPI had been missold by the card provider and the complaint was upheld. The card provider reconstructed the account by removing any premiums in respect of the PPI and any interest or charges incurred as a result of those premiums. As Ms K paid her credit card balance every month she had a series of monthly credit balances on her credit card after the reconstruction and so she received the following amounts:
Ms K was repaid the premiums she had paid every month on the PPI plus interest at 8% per year.
The earliest premium was paid in February 2007 and the last was in June 2011. The insurance company repaid the premiums on 1 December 2011. So interest was paid for the first premium from February 2007 to the end of November 2011, for the second premium from March 2007 to November 2011 and so on until the last premium on which interest was paid for the period June 2011 to November 2011.
The refund of premiums to Ms K is not taxable. The interest paid by the card provider (which in this case was not a bank) to Ms K is taxable and the card provider should deduct tax from the interest when it is paid. If Ms K is a higher rate taxpayer, or as a result of the interest receipt she becomes a higher rate taxpayer, she should inform HMRC about the interest and include the interest on her tax return. Guidance on how to do this can be accessed from the front page of the HMRC website via the ‘Report a Change’ Quick Link.