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HMRC internal manual

Savings and Investment Manual

HM Revenue & Customs
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Credit card closed and PPI cancelled

Example where both the credit card and PPI no longer exist

Mr M had a credit card and a PPI policy but cancelled his credit card and PPI in August 2007. 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 M did not pay off his credit card every month.

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

The bank has to repay to Mr M the difference between the amount he had to pay to close his credit card account and the amount that he would have had to pay if he had not taken out PPI. The bank then paid Mr M interest on the difference at 8% from August 2007 when he closed his credit card account to June 2010 when his case was settled.

The interest paid by the bank to Mr M on the credit balances and on the difference paid to settle the account is taxable but the bank will not deduct tax from the interest when it is paid. If Mr M 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 if he does not complete a tax return inform HMRC of the receipt of 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.