dave2
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Post by dave2 on Sept 19, 2017 16:10:29 GMT
Just noticed that the online tax statement (Reports / Tax Statement) has changed considerably.
As well as investment income for the year it also shows:
- New defaults in the current period 6th April 2016 to 5th April 2017 <<(1)
- Principal recovered from defaults happening since 6th April 2015
- Interest recovered in period 6th April 2016 to 5th April 2017 from defaults happening after 6th April 2015 <<(2)
- Total eligible bad debt or recovered income in period:
- Total declarable interest income
On my statement:
(1) There is a default included in the period which I believe happened just after the period end, and which has been partially reclaimed already even though the reclaim is not mentioned.
(2) There is interest recovered in the period even though I did not open my account till 10/6/16, I cannot reconcile this.
Seemingly the loans are now written off as soon as (or before) they default
Things were so simple before...
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SteveT
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Post by SteveT on Sept 19, 2017 16:42:14 GMT
This has been much requested and a long time coming, but I'm pleased that it's now arrived. Very helpfully, if you download the CSV file you also get a breakdown (easily filtered / sorted) showing the loans and sums that have been included under "Principal Defaulted", "Principal Recovered", "Interest Recovered", as well as "Interest". Many thanks andrewholgate ! |
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SteveT
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Post by SteveT on Sept 19, 2017 17:16:14 GMT
Hmmm, perhaps I spoke too soon, as the first defaulted loan I looked at, the Optical Lens Manufacturer #57, looks odd to me. The new 2016-17 tax statement shows me that the following figures have been included for loan #57: "New defaults in the current period 6th April 2016 to 5th April 2017" = £250 on 7th April 2015 (ie. it was already defaulted by tax year 2016-17) "Principal recovered from defaults happening since 6th April 2015" = £9.19 on 14th March 2017 "Interest recovered in period 6th April 2016 to 5th April 2017 from defaults happening after 6th April 2015" = £0 ... which might lead one to assume that I had £240.81 unpaid principal outstanding. However, I actually have £163.64 unpaid principal outstanding, the difference I think being accounted for by prior recoveries of principal achieved in 2015-16 (on 29th June 2015 and 3rd September 2015 respectively). andrewholgate , I reckon the report is currently picking up defaults that occurred in 2015-16 and including the principal in " New defaults in the current period 6th April 2016 to 5th April 2017", but not picking up any recoveries made on the same loans during 2015-16. Ideally the 2015-16 tax statement should also be updated to show the same Principal Defaulted / Principal Recovered / Interest Recovered categories (for loans that defaulted in 2015-16) but, either way, surely the treatment of Principal Defaulted and Principal Recovered needs to be consistent? |
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dave2
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Post by dave2 on Sept 19, 2017 18:00:43 GMT
Very helpfully, if you download the CSV file you also get a breakdown (easily filtered / sorted) showing the loans and sums that have been included under "Principal Defaulted", "Principal Recovered", "Interest Recovered", as well as "Interest". Thanks for that tip, I can now see what happened. I had a single defaulted loan during the period. - My defaulted loan has been treated as "principal defaulted" on the original maturity date, which was just before the end of the 2016-2017 tax year, even though I thought that ongoings pushed the default date over into the 2017-2018 tax year.
- Interest paid just two days after this default (original maturity) date has been excluded from "investment income" and counted as "interest recovered. . ."
I would rather have ignored the potential losses from the 2016-2017 tax return, a large proportion of the loan has already been repaid through sale of the underlying security, and more is pending. However I suppose I legally have to use this tax statement and it's " Total declarable interest income" as gospel, declare a total loss of my investments in this particular loan, and include all recovery monies as income in my future tax returns. Hence the capital that I invested in this loan will be taxed again as income in a future year. That can't be right... 
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SteveT
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Post by SteveT on Sept 19, 2017 18:09:22 GMT
You don't HAVE to claim your "irrecoverable" P2P capital against your interest income, but it may become complicated in future years if the figures you report to HMRC differ from those that platforms are obliged to report.
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Post by stuartassetzcapital on Sept 19, 2017 18:18:27 GMT
Indeed you spotted this before the email broadcast and post here but to confirm :
Following the introduction of new tax relief rules by HMRC, we have changed the way our Tax Statement works. The new rules allow for the deduction of possible losses arising from loans that have gone into default against the interest income that a lender has earned during the year. This allows for actual losses to be offset against your interest income. Should a recovery of the loan happen at a later date, the capital will be treated as interest income, reversing the previous relief received.
Our new tax statement shows how much normal interest you have received but now includes a new section detailing balances that can be used to offset against interest income, as well as recoveries that will be treated as income. With the Self Assessment deadline approaching at the end of October we have released this now in order for you to prepare your return for the current tax year.
Hope this helps.
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Post by stuartassetzcapital on Sept 19, 2017 18:18:46 GMT
You don't HAVE to claim your "irrecoverable" P2P capital against your interest income, but it may become complicated in future years if the figures you report to HMRC differ from those that platforms are obliged to report. I understand you are correct yes.
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jonah
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Post by jonah on Sept 19, 2017 21:44:12 GMT
I will need to get my head around this before contacting hmrc... this suggest I lost approximately 100x what I thought I lost last year. The AC details might be correct, I need to get into my spreadsheets but I really wasn't expecting that number.
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dave2
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Post by dave2 on Sept 19, 2017 22:24:04 GMT
I would have expected there to be a "reasonable" recovery period for a defaulted loan, twelve months minimum.
It does seem rather strange incorrect to force a 100% default loss within a few days of the loans original maturity date, especially when there are significant assets still being realised.
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SteveT
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Post by SteveT on Sept 20, 2017 5:48:40 GMT
I would have expected there to be a "reasonable" recovery period for a defaulted loan, twelve months minimum. It does seem rather strange incorrect to force a 100% default loss within a few days of the loans original maturity date, especially when there are significant assets still being realised. It's got very little do with losses, or even expected losses. It's about dovetailing with HMRC's guidance about when a P2P loan may be treated as "irrecoverable" under SAIM 12000 and the capital that's tied up in it offset against P2P interest earned in the year. The definition given in section SAIM 12050 is: When is a peer to peer loan treated as irrecoverable?Under the legislation for income tax relief for irrecoverable peer to peer loans in certain circumstances a loan may be treated as irrecoverable for the purposes of the relief even if there may be a prospect that the lender could recover some of the amount outstanding. This is the case for the following situations:Loans with securityWhen loans are made against security, a loan may be treated as becoming irrecoverable as if the security did not exist.Loans where legal recovery action is takenWhen the borrower has entered legal recovery procedures such as liquidation, administration, receivership or bankruptcy the loan may be treated as becoming irrecoverable as if such action was not available.So a secured loan may be treated as "irrecoverable" at the point that it enters legal recovery procedures (eg. appointment of a Receiver or Administrator), even if prospects for recovery are good and swift. Future recoveries are then taxed (as income) in the year they occur.
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Mike
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Post by Mike on Sept 20, 2017 7:58:26 GMT
For me this defers income from 15-16 to 16-17 which I wasn't expecting. In my case that's beneficial but it's going to make exact tax planning more or less impossible going forward. There's no way I can see myself being able to utilise the whole interest allowance allocated to me.
Just when I thought I had it all figured out! I suppose board games that lack a random element aren't sold much for a reason, maybe it's all part of the fun
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SteveT
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Post by SteveT on Sept 20, 2017 8:26:56 GMT
stuartassetzcapital, why is that AC include any new lender incentive payment (eg. from the Love Money / MoneySupermarket cashback offers) on the Tax Statement as " Other Declarable Income"? Every other P2P platform I know of works on the basis that such a payment, made by the platform and not linked to specific loans, is simply an "incentive to lend" and so not liable to tax under HMRC guidance. The word "Declarable" implies that AC believes such a payment should be declared to HMRC; is that the case, or might the heading be changed to "Other Income" instead?
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SteveT
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Post by SteveT on Sept 20, 2017 9:07:43 GMT
Indeed you spotted this before the email broadcast and post here but to confirm : Following the introduction of new tax relief rules by HMRC, we have changed the way our Tax Statement works. The new rules allow for the deduction of possible losses arising from loans that have gone into default against the interest income that a lender has earned during the year. This allows for actual losses to be offset against your interest income. Should a recovery of the loan happen at a later date, the capital will be treated as interest income, reversing the previous relief received. Our new tax statement shows how much normal interest you have received but now includes a new section detailing balances that can be used to offset against interest income, as well as recoveries that will be treated as income. With the Self Assessment deadline approaching at the end of October we have released this now in order for you to prepare your return for the current tax year. Stuart, before you send the "email broadcast", there is definitely a problem with the way the new report is treating loans that first hit problems in 2015-16 (or at least, prior to 2016-17). As an example: My wife opened a new AC account on 18th April 2016 (ie. in the 2016-17 tax year) and purchased some #208 Preston Commercial Property Bridging Loan over the following couple of weeks. Reading back through the loan updates for #208, it appears that AC had already sent a Reservation of Rights letter to the Borrower on 10th March 2016 (2015-16 tax year) although the loan remained trade-able, and subsequently appointed an LPA Receiver in August 2016 (2016-17 tax year). The loan was eventually repaid in full on 8th June 2017 (2017-18 tax year). I expected to see a #208 "Principal Defaulted" entry in my wife's 2016-17 tax statement, followed by a corresponding "Principal Recovered" entry in the 2017-18 tax statement. Instead there is no sign of any "Principal Defaulted" entry (in either tax year) but the "Principal Recovered" entry is included in the 2017-18 tax statement. Unless corrected, this means that my wife would be taxed on a recovery that was never claimed as "irrecoverable" !! I'm guessing the cause of this is that AC have used the Reservation of Rights letter date (in 2015-16) as the point when the loan became irrecoverable, but defaults prior to the start of the 2016-17 tax year currently aren't getting picked up as "Principal Defaulted" in the 2016-17 tax statement. A "Principal Recovery" cannot be included as taxable in 2017-18 unless there a corresponding "Principal Default" is shown in a prior tax year (whether 2015-16 or 2016-17)
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Post by stuartassetzcapital on Sept 20, 2017 10:20:52 GMT
stuartassetzcapital , why is that AC include any new lender incentive payment (eg. from the Love Money / MoneySupermarket cashback offers) on the Tax Statement as " Other Declarable Income"? Every other P2P platform I know of works on the basis that such a payment, made by the platform and not linked to specific loans, is simply an "incentive to lend" and so not liable to tax under HMRC guidance. The word "Declarable" implies that AC believes such a payment should be declared to HMRC; is that the case, or might the heading be changed to "Other Income" instead? Hi Steve We can’t offer tax advice. Our understanding is that loyalty rewards are taxable income and we have treated it as such. Should you query this, please speak to HMRC or a qualified tax adviser who can help you get more clarity. If you have a specific piece of advice from any of those other platforms we would be very happy to look at them but our current advice received is designed into the report. Take your point that perhaps we should mark it in a new column called other income and people can follow their own advice then. Have fed back.
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jlend
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Post by jlend on Sept 20, 2017 11:04:17 GMT
stuartassetzcapital , why is that AC include any new lender incentive payment (eg. from the Love Money / MoneySupermarket cashback offers) on the Tax Statement as " Other Declarable Income"? Every other P2P platform I know of works on the basis that such a payment, made by the platform and not linked to specific loans, is simply an "incentive to lend" and so not liable to tax under HMRC guidance. The word "Declarable" implies that AC believes such a payment should be declared to HMRC; is that the case, or might the heading be changed to "Other Income" instead? Hi Steve We can’t offer tax advice. Our understanding is that loyalty rewards are taxable income and we have treated it as such. Should you query this, please speak to HMRC or a qualified tax adviser who can help you get more clarity. If you have a specific piece of advice from any of those other platforms we would be very happy to look at them but our current advice received is designed into the report. Take your point that perhaps we should mark it in a new column called other income and people can follow their own advice then. Have fed back. Interesting. I thought cashback was not taxable and loyalty commission was as per these examples from accountant performanceaccountancy.co.uk/tax-bank-rewards/On the AC statement it says cashback.
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