£3.4m WInd Turbine Portfolio Loan

There is no obligation AFAIK on the borrower to implement withholding tax and obviously (I would have thought) created a bit more paperwork for themselves . So the conclusion is it looks like purely a cash flow dodge.

So now I see on my statement...



Who is exactly retaining the tax? Was it paid to AC and they are retaining it? If the borrower has paid their monthly instalment net of tax @ 20% why is it even showing on my statement?

The borrower is retaining it, but we need to run it through the system to be able to report against it on your statement.  This was our chosen approach to the problem.

bugs4me - the borrower believes that it is their obligation, they're not doing it for fun or cashflow as it will be costing them to administer.

I am not a taxpayer, have very little income and the interest my small investments earn will be far too tiny to warrant either tax being deducted by the borrower or having to claim it back myself. An R85 type option is the only one that makes sense for people in my situation - and we are not that rare, especially in this era of zero - 12/hours contracts!

I did see mention of this in the budget but was trying to make it go away by ignoring it ....sometimes it seems like every time I start to make some headway (mutter, moan, swear, groan)..

Not everyone adopts the R85. Those famous pensioner bonds being brought into play in January by NS&I will not qualify for R85 treatment. So you will need to claim back the tax from HMRC if you are under the threshold.

There are a couple of different things going on here.

AUTUMN STATEMENT

First the Autumn Statement: "The government will consult on the introduction of a withholding regime for Income Tax to apply across all P2P lending platforms from April 2017. This will help many individuals to resolve their tax liability without them having to file for Self Assessment."

This has been on the cards for some time but keeps being pushed back. It would apply to all p2p lending in the UK (both p2b and p2c). It is addressing payments by the platforms to borrowers. It's got nothing to do with payments by the borrowers themselves. I will come back to that.

The reason for the proposal is that HMRC / the Treasury are concerned that a lot of p2p lenders are not declaring their income for tax. Lenders should be aware that the platforms now have an obligation to report interest paid to HMRC so, if you are not declaring your income, HMRC may catch up with you anyway. But it's less work for HMRC if the platforms deduct the tax at source.

If you are a UK resident and not liable to pay the tax, the worst case is that you will be able to get it back either via your tax return (in the unlikely event that you have to prepare one) or via form R40, which is pretty simple to complete. The current version of form R85, to register to receive income without deduction of tax, is only applicable to bank and building society deposits. They might amend it to include p2p, or they might not. I'm sure this will come up in the consultation.

For overseas residents not wanting tax to be deducted at source, R105 is the equivalent to R85. Again, the present version can be used only for bank and building society deposits. To the extent that interest is deducted in the UK, my understanding is that overseas residents cannot get it repaid. They might or might not get a credit for it in their local tax jurisdiction depending on the rules in that country and whatever the relevant double tax treaty says.

INTEREST PAID BY BORROWERS

There is no requirement for consumer borrowers to deduct interest at source, so interest paid on p2c loans is, and will continue to be, paid gross.  However, the platforms will still have to deduct interest when they pay it on to lenders, if the Autumn Statement proposals are enacted.

The position with p2p loans is less straightforward.

It has always been the case that companies are obliged to deduct basic rate tax at source on interest where the loan is for more than one year.  I am not certain why the vast majority of p2b borrowers do not deduct tax but it may be because standard p2b loans are repayable on demand without penalty which perhaps enables one to argue that the term is short.

I do not know if there is something unusual about this particular loan that prevents it being repaid within one year (or would require a penalty to be paid if it were). If there is, it could explain why the borrower is deducting tax. If not, one can only assume that their accountant is taking a very conservative view or they asked their local tax inspector and he gave an unhelpful answer.

Be that as it may, the fact is that this particular company is deducting interest. The current version of R85 (or R105 if you are overseas) cannot be used for loans to ordinary companies. UK individuals not liable to pay the tax can claim it back via their tax return or on R40.

I know this for definite because my wife has a couple of loans where interest is deducted at source, and R85 cannot be used. She's completed R40 for a number of years, but not this year. Having switched the rest of her savings into p2p she's now earning enough interest to be a taxpayer so I've had to do a tax return for her. Not sure if this is good news or bad news!

As noted above my understanding is that overseas residents can't claim the tax back but might get a credit for it locally.

Edit: A couple of posters have mentioned a cash flow benefit to the company. This is relatively small because, when companies deduct tax at source, they must account for it quarterly.