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Example where the loan and PPI run full term

Mr J took out a 4 year car finance loan in 1999 for 拢20,000 and at the same time took out payment protection insurance (PPI) through the loan broker in case he was unable to meet the loan repayments. The PPI premium was 拢850 and was added to the loan balance so his total borrowing was 拢20,850. The loan ran its full term and both the loan and the PPI finished in 2003. The PPI and historical interest on the PPI was 拢25 a month. He complained to the broker in 2011 that the PPI was missold.

The complaint was upheld and the broker paid to Mr J the difference between the payments he actually made and those which would have applied if he taken out the loan without PPI. This was 拢1200 (拢25 a month x 48 months).

Once it had done this calculation the broker also paid Mr J 8% interest on the 拢1200 from the date that Mr J made the payments to the date that the compensation was paid.

The interest paid by the broker at 8% is in respect of compensation and is taxable on Mr J. Tax will be deducted from the interest. Mr J should inform HMRC about the interest and include the interest on his tax return if he is a higher rate taxpayer or becomes one as a result of the interest. Guidance on how to do this can be accessed from the Dealing with HMRC pages on 伊人直播.