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HMRC internal manual

Savings and Investment Manual

HM Revenue & Customs
, see all updates

Interest: credit card still being used but PPI cancelled

Example where customer still has credit card but no longer has PPI

Mr L has a credit card but cancelled his PPI in March 2009. He complained to his bank in January 2010 that he thought he had been missold PPI and the bank agreed in June 2010 to settle his case. Mr L did not pay off his credit card every month.

The bank reconstructed Mr L’s credit card account by removing the PPI premiums and any interest or charges incurred as a result of those premiums. In the months where Mr L has a credit balance on his account because of the account reconstruction the bank paid him interest on the balance at 8%.

The payment made to Mr L to reflect the difference between the actual and reconstructed balance of the account is not taxable. The interest paid by the bank to Mr L is taxable but the bank will not deduct tax from the interest when it is paid. If Mr L is a higher rate taxpayer or as a result of the interest receipt he becomes a higher rate taxpayer he should include the interest on his tax return or inform HMRC that he has received the interest. Guidance on how to do this can be accessed from the front page of the HMRC website via the ‘Report a Change’ Quick Link.