mikes1531
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Post by mikes1531 on Dec 14, 2014 22:37:06 GMT
A quote from Samir Desai, FC CEO: in response to the question "On the subject of taxation, is it correct that there may be a requirement for FC, along with other platforms, to start deducting tax at source?" (March 2013): It appears that HMRC has provided a concession; is there any reason why it cannot be applied for AC's borrower on this occasion? The regulations now look like they will start from April 2017 and it would appear that there is no need to jump the gun. Hmmmm, a mate of a mate says..... Until HMRC make a definitive public statement, the borrower is correct in their stance. Furthermore, the HMRC concession appears to be regarding whether the P2P platforms have to start retaining tax. In this case, it's the borrower that had decided they want/need to withhold the tax, so I don't see how the HMRC concession would even be applicable.
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mikes1531
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Post by mikes1531 on Dec 14, 2014 23:34:09 GMT
The borrower has no information on the identity of, or interest paid to, each individual lender. AC does, and other platforms might (depending on how their systems work). So, although borrowers have the statutory obligation to provide the tax statements, the only practical way to proceed is for borrowers to delegate the task to the platforms. good point. However the borrower would need to gain the agreement of the p2p platform. There is little incentive or practical reason for the platform to agree to do this without imposing charges that would negate any postive effect on the cashflow of the borrower gained by witholding the tax payments. As others have suggested, the cash flow benefits could be minimal, and the awkwardness of doing the retention could be large, so I suspect the borrower in question is doing this only because they're received professional advice that told them they had to do it. I agree that AC have all the necessary data to produce the necessary info for the borrower, including all the year-end statements for lenders. Unless they expect this will become a necessity for all their borrowers -- or they're feeling rather generous -- I'd expect them to charge the borrowers a fee for this service. And I'd expect that any borrowers that feel the need to retain tax would be more than willing to pay that fee as it would save them from having to set up systems to take the raw data from AC and deal with it themselves. This could be a positive contributor to AC's bottom line! And if AC could package their system and sell it to other P2P platforms... 
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pikestaff
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Post by pikestaff on Dec 15, 2014 8:17:50 GMT
Hmmmm, a mate of a mate says..... Until HMRC make a definitive public statement, the borrower is correct in their stance. Furthermore, the HMRC concession appears to be regarding whether the P2P platforms have to start retaining tax. In this case, it's the borrower that had decided they want/need to withhold the tax, so I don't see how the HMRC concession would even be applicable. My thought too, although it's entirely possible that Samir's conversation included the borrower issue but he kept his response simple. Also, it's not crystal clear to me that the borrower is correct in its stance. Is the borrower paying interest to is, or is it paying interest to AC as its paying agent, who then pays us? If it's the latter, and I rather think that it is, then there is at least a fair argument that the borrower need not deduct tax and that if it does not the obligation falls on AC, which would make the reported concession directly relevant.
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shimself
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Post by shimself on Dec 15, 2014 8:45:44 GMT
..... Also, it's not crystal clear to me that the borrower is correct in its stance. Is the borrower paying interest to is, or is it paying interest to AC as its paying agent, who then pays us? If it's the latter, and I rather think that it is, then there is at least a fair argument that the borrower need not deduct tax and that if it does not the obligation falls on AC, which would make the reported concession directly relevant. The whole point of p2x is that the borrower owes the lender, not the platform. If AC was the agent that would introduce platform risk wouldn't it? (I'm neither a lawyer nor an accountant)
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pikestaff
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Post by pikestaff on Dec 15, 2014 9:16:00 GMT
..... Also, it's not crystal clear to me that the borrower is correct in its stance. Is the borrower paying interest to is, or is it paying interest to AC as its paying agent, who then pays us? If it's the latter, and I rather think that it is, then there is at least a fair argument that the borrower need not deduct tax and that if it does not the obligation falls on AC, which would make the reported concession directly relevant. The whole point of p2x is that the borrower owes the lender, not the platform. If AC was the agent that would introduce platform risk wouldn't it? (I'm neither a lawyer nor an accountant) Agent may not be the right word but it's not as simple as the borrower paying us, either. The money does not go into our bank accounts. It goes into a client money account somewhere. Plus the rate paid by the borrower is not what we receive because AC's share is stripped out along the way. I don't know the exact legals, which are sure to vary from platform to platform, but there may be sufficient ambiguity in the process to create some doubt as to who is required to deduct, and when. Now that I think of it, for as long as the money is sitting in the client account and has not been paid to us, it might even be possible to argue that the obligation to deduct has not yet crystallised. Which is another reason why HMRC might accept the status quo. Thinking aloud really, in the hope that something might strike a chord with AH and be useful when he talks to HMRC.
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Post by andrewholgate on Dec 15, 2014 12:24:34 GMT
Already looked at the agent/lender angle. In the loan documents it states the lender is the Assetz Capital Lending Members and not Assetz Capital Limited. Therefore the borrower is paying private individuals and not a corporate.
Having taken a lot of legal advice on this, I stand by saying the borrower is correct as the law stands. They have taken their own independent advice from a Big Four accountancy firm, as have we. Until the law changes or HMRC make a public statement about this, the borrower is acting within the law as it stands.
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oldgrumpy
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Post by oldgrumpy on Dec 15, 2014 12:36:00 GMT
Does the law which authorises them to do this also state that they have to provide a certificate of interest retained to each lender? Maybe they have not considered the implications of that.
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Post by andrewholgate on Dec 15, 2014 12:55:18 GMT
We will be doing that to ensure lender anonymity is maintained.
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Post by batchoy on Dec 15, 2014 14:23:17 GMT
Does the law which authorises them to do this also state that they have to provide a certificate of interest retained to each lender? Maybe they have not considered the implications of that. The law requires that they provide one if requested to by the recipient of the payment section 975 Statements About Deduction of Income Tax, thus if they claim that they need to withhold tax in order to comply with the law then dint of the same law they need (upon request) to supply lenders with statements showing the gross amount of the payment, the amount of the sum deducted, and the actual amount paid.
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gon
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Post by gon on Dec 15, 2014 16:07:57 GMT
We note the issue on this thread relates to Assetz Tax Statements and the debate as to whether or not Cashback should be classed as taxable income or not. However, it is not just cashback which is not included in the Tax Statements, they do not take account of transactional overrides, commissions, underwriting fees, monthly overrides etc. Surely these would also be deemed by HMRC as income and therefore should be taxable and consequently should appear on the AC Tax Statements. We have a discrepancy of over £7000 on our account between what we believe is taxable and what AC Tax Statement shows for the same period. We would appreciate some clarity on this if anyone knows the answer.
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pikestaff
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Post by pikestaff on Dec 15, 2014 18:20:27 GMT
gon You may have posted on the wrong thread. This one's about the specific issue of tax deductions at source by the borrower. Try here: p2pindependentforum.com/thread/1811/on-subject-uk-tax. It sounds like you are an underwriter. Underwriting income is a fee for a service and so is obviously income. Cashback is more tricky, as discussed in the other thread. For individuals at least, I think some is and some isn't. I've no idea what some of the other things that you mention are. IMO if the objective of AC's tax statement is to be a certificate of interest paid then nothing but interest should be on it. If the objective is to be a statement of all things paid then they should all be on it, suitably analysed, but I'd not want it to be called a tax statement because they may not all be taxable.
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pikestaff
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Post by pikestaff on Dec 15, 2014 18:29:05 GMT
Already looked at the agent/lender angle. In the loan documents it states the lender is the Assetz Capital Lending Members and not Assetz Capital Limited. Therefore the borrower is paying private individuals and not a corporate. Having taken a lot of legal advice on this, I stand by saying the borrower is correct as the law stands. They have taken their own independent advice from a Big Four accountancy firm, as have we. Until the law changes or HMRC make a public statement about this, the borrower is acting within the law as it stands. We may be the lenders but the borrower does not pay us. The borrower pays (whether directly or indirectly, I don't know) a client funds account for the benefit of lenders. The client funds account is, I think, in the name of an Assetz entity. Hoping there's some room for ambiguity here. Please do not rule anything out before you talk to HMRC.
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Post by batchoy on Dec 15, 2014 19:30:58 GMT
Already looked at the agent/lender angle. In the loan documents it states the lender is the Assetz Capital Lending Members and not Assetz Capital Limited. Therefore the borrower is paying private individuals and not a corporate. Having taken a lot of legal advice on this, I stand by saying the borrower is correct as the law stands. They have taken their own independent advice from a Big Four accountancy firm, as have we. Until the law changes or HMRC make a public statement about this, the borrower is acting within the law as it stands. We may be the lenders but the borrower does not pay us. The borrower pays (whether directly or indirectly, I don't know) a client funds account for the benefit of lenders. The client funds account is, I think, in the name of an Assetz entity. Hoping there's some room for ambiguity here. Please do not rule anything out before you talk to HMRC. You touch on something quite pertinent pikestaff, though not a legal expert I deal with legislation a daily basis and I would interpret the section: to mean that AC rather than the Borrower were responsible for deducting the Tax since the payment passes through AC before it is distributed ( made) by AC to lenders and not by the Borrower, this is further backed up by the fact that the borrower cannot make available the necessary statutory tax statements (section 975) to individual lenders (if they chose to exercise their statutory right and requested them) because they do not know who the lenders are, their tax status, how much they are lending or how much interest they have received whereas AC do and can. See also SAIM9078 - Deduction of tax: yearly interest: the person by or through whom payment is made, HMRC's own guidance which would appear to back up this view. A simple test of the situation would be for a lender who has received a sub-penny amount of interest to request a Tax Statement from the borrower which they are legally entitled to do and to expect. Any other interpretation would mean that borrower and lender anonymity would have to go out of the window in order for the borrower to comply with the law and for the lenders to be able to exercise their statutory rights.
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pikestaff
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Post by pikestaff on Dec 15, 2014 23:14:56 GMT
We may be the lenders but the borrower does not pay us. The borrower pays (whether directly or indirectly, I don't know) a client funds account for the benefit of lenders. The client funds account is, I think, in the name of an Assetz entity. Hoping there's some room for ambiguity here. Please do not rule anything out before you talk to HMRC. You touch on something quite pertinent pikestaff, though not a legal expert I deal with legislation a daily basis and I would interpret the section: to mean that AC rather than the Borrower were responsible for deducting the Tax since the payment passes through AC before it is distributed ( made) by AC to lenders and not by the Borrower, this is further backed up by the fact that the borrower cannot make available the necessary statutory tax statements (section 975) to individual lenders (if they chose to exercise their statutory right and requested them) because they do not know who the lenders are, their tax status, how much they are lending or how much interest they have received whereas AC do and can. See also SAIM9078 - Deduction of tax: yearly interest: the person by or through whom payment is made, HMRC's own guidance which would appear to back up this view. A simple test of the situation would be for a lender who has received a sub-penny amount of interest to request a Tax Statement from the borrower which they are legally entitled to do and to expect. Any other interpretation would mean that borrower and lender anonymity would have to go out of the window in order for the borrower to comply with the law and for the lenders to be able to exercise their statutory rights. Indeed. I think the payment is made "through" AC. And I also think that there is ambiguity as to when it is paid. It is not necessarily paid when it is sitting in a pooled client account. It would be paid once withdrawn, but unless the whole of the account is withdrawn how do you know if a withdrawal is of principal or interest? It all gets very difficult which may be why HMRC has hitherto seemed content to await legislation.
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Post by batchoy on Dec 15, 2014 23:54:19 GMT
You touch on something quite pertinent pikestaff, though not a legal expert I deal with legislation a daily basis and I would interpret the section: to mean that AC rather than the Borrower were responsible for deducting the Tax since the payment passes through AC before it is distributed ( made) by AC to lenders and not by the Borrower, this is further backed up by the fact that the borrower cannot make available the necessary statutory tax statements (section 975) to individual lenders (if they chose to exercise their statutory right and requested them) because they do not know who the lenders are, their tax status, how much they are lending or how much interest they have received whereas AC do and can. See also SAIM9078 - Deduction of tax: yearly interest: the person by or through whom payment is made, HMRC's own guidance which would appear to back up this view. A simple test of the situation would be for a lender who has received a sub-penny amount of interest to request a Tax Statement from the borrower which they are legally entitled to do and to expect. Any other interpretation would mean that borrower and lender anonymity would have to go out of the window in order for the borrower to comply with the law and for the lenders to be able to exercise their statutory rights. Indeed. I think the payment is made "through" AC. And I also think that there is ambiguity as to when it is paid. It is not necessarily paid when it is sitting in a pooled client account. It would be paid once withdrawn, but unless the whole of the account is withdrawn how do you know if a withdrawal is of principal or interest? It all gets very difficult which may be why HMRC has hitherto seemed content to await legislation. The ambiguity is only a minor one as whilst uninvested funds are held in a pooled bank account they are still credited against an individual lender within the AC system, to a degree it is no different to paying cash into your bank account, your account is credited but the actual cash joins the pool that the bank then supplies to other customers. The issue of the funds being paid through AC is the core one where AC act as agents/intermediaries/trustees receiving full payments from borrowers which they then distribute to lenders, at no time do borrower pay funds directly to lenders and as such aren't able to generate the correct tax records, and if you can't create the records you can't pay the tax. If AC start producing tax statements for the tax being withheld by lenders, if they are not careful and don't stipulate who deducted the tax, they could find them selves in hot water the HMRC as it could end up appearing that AC had deducted tax at source but not paid it on to HMRC.
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