stevio
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Post by stevio on Apr 3, 2016 13:33:08 GMT
I'm only just found time to look at this as its my first year P2P and not yet reached company year end
Thought it would be useful to have a thread discussing how people believe P2P is taxed when investing through a company and how it might differ from an individual investing
I've started out looking into Loan Relationship rules, don't know if I am in the right ballpark or if others have looked further into this?
Any help appreciated!
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pikestaff
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Post by pikestaff on Apr 3, 2016 14:55:53 GMT
The loan relationship rules are the right place. It is conceptually very simple but may require more work from you depending on how much info the platforms report.
1. Companies pay corporation tax on all income and gains.
2. Interest is taxed on an ACCRUALS basis, not a cash basis.
3. All gains and losses on disposal are taxable/deductible.
4. You get to provide for loan losses (as a deduction against income) on the basis of generally accepted accounting practice. Put simply, if a loss is expected you can and should provide for it on a best estimate basis. There's a lot of room for judgement here but HMRC is unlikely to second guess you if you are reasonable.
Disadvantages IMO:
1. Accrual accounting is less simple than cash accounting and will recognise income sooner.
2. Having to record and account for tax on all disposals. This means you also need a record of cost for each loan.
Advantage(s) IMO:
1. Losses relieved against income. No longer an advantage now that there is legislation to give individuals such relief.
2. Although the main advantage has gone, you may still get quicker and more certain loss relief through a company. This will depend on how the new rules for individuals are interpreted in practice.
Then there's the cost of running the company unless you've already got one. I've not been tempted.
There might be other pros and cons, more related to having a company full stop, rather than to putting p2p through it. This is not my territory so I will leave it to others.
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duck
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Post by duck on Apr 3, 2016 16:03:30 GMT
The other thing to consider carefully is what is your exit strategy i.e how do you aim to get your money out?
My Ltd has been in existence for a fair number of years (I needed a Ltd Co to work through) and has a decent amount of money in it. Extracting the cash without incurring a large tax bill either to me personally or to the Company has been/is being shall we say 'problematical'.
My advice would be to think very carefully what the advantages are now since (as pikestaff has pointed out) the main advantage has been negated by the introduction of personal tax relief on losses.
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stevio
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Post by stevio on Apr 3, 2016 19:54:35 GMT
The other thing to consider carefully is what is your exit strategy i.e how do you aim to get your money out? My Ltd has been in existence for a fair number of years (I needed a Ltd Co to work through) and has a decent amount of money in it. Extracting the cash without incurring a large tax bill either to me personally or to the Company has been/is being shall we say 'problematical'. My advice would be to think very carefully what the advantages are now since (as pikestaff has pointed out) the main advantage has been negated by the introduction of personal tax relief on losses. I have built up surplus cash business which is trapped unless I pay tax to withdraw I will either use ER at 10% or retire and slowly withdraw funds via salaries and dividends within tax free allowances However, before that, may as well get the surplus cash working!
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duck
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Post by duck on Apr 4, 2016 5:23:26 GMT
I have built up surplus cash business which is trapped unless I pay tax to withdraw I will either use ER at 10% or retire and slowly withdraw funds via salaries and dividends within tax free allowances However, before that, may as well get the surplus cash working! Exactly the position I find myself in. Beware the dividend tax!
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Post by jackpease on Apr 4, 2016 5:51:57 GMT
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stevio
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Post by stevio on Apr 4, 2016 5:58:02 GMT
I have built up surplus cash business which is trapped unless I pay tax to withdraw I will either use ER at 10% or retire and slowly withdraw funds via salaries and dividends within tax free allowances However, before that, may as well get the surplus cash working! Exactly the position I find myself in. Beware the dividend tax! I will take the 22k/yr tax free and hopefully won't need more than that, eating into savings if needed. If I have to pay dividend tax, then this can be offset with VCT's, if your happy investing in VCT's. James has suggested some VCT's that are asset backed and have a good return if your willing to hold for 5yrs and repeat.
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sl125
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Post by sl125 on Apr 4, 2016 12:43:57 GMT
I'm not sure the accounting needs to be that complicated.
Under the loan relationship rules, all gains and losses (ie. both the interest received and the "related transactions", which are the charges, premiums, discounts, etc) are simply brought into account as non-trading investment income (which then goes into one figure - interest - on the CT600 return). The detail behind the individual transactions can simply be the download of FC's monthly statements, filed away should you be audited. Then in your accounting system, simply record one journal per month of the net gain/loss. Assuming a net gain this would be:
Debit: FC account (asset)
Credit: non-trading investment income (income)
So long as you keep the FC spreadsheets detailing the individual transactions, you shouldn't need to record the individual loan transactions in your accounting system. If you were to account down at the micro level, it would get pretty messy - eg.
Interest received: dr asset, cr income
FC charges: debit income, cr asset
premium (when selling): dr asset, credit income
etc.
The above is a simplification, as on the balance sheet you would probably need to classifiy the money currently sitting in FC's holding account as cash, whereas the money currently lent out is "other debtors".
The only other thing to bear in mind with loan relationship rules, is whether your company is in any way connected to to any of the companies you are in a loan relationship with. But if, as it seems to be the case, you are a close company / PSC with spare cash to invest, this shouldn't be a concern.
Finally, depending on how much income you are generating through FC compared to your company's trading income, you might find your company becomes classified as a Close Investment Holding Company. Now that the small companies rate of corp tax has been abolished, this is not so much a concern anymore. But it used to be that a CIHC classification would mean your company would be taxed at the main corp tax rate.
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