GreenZero
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Post by GreenZero on Sept 13, 2022 21:12:33 GMT
Can we just take a step back from the HMRC position.
On 09/09/22 Abl provided us with an update on their loan book
AF Power was creating a holding company with the intention to list it on an exchange with a view to making payments
AF Properties we were told Af was in negotiations with the administrators of GS. Previously the lodges were up for sale (not sure who with)
APF were given a date in October to reply following the serving of a Reservation of Rights Letter.
Non of these loans were described in the update as irrecoverable, so what has changed over these four days to amend their status?
I suppose the answer is to send an email to DBW and get it straight from the horses mouth..
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hubert
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Post by hubert on Sept 13, 2022 21:21:51 GMT
Where does it state the loans are irrecoverable ?
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GreenZero
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Post by GreenZero on Sept 13, 2022 21:36:29 GMT
That was my point.
On 9/9 Abl seemed to be of the opinion they were collectable, however the loans now feature in the Lender Tax Statement for 22/23 as bad debt.
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hubert
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Post by hubert on Sept 13, 2022 21:42:33 GMT
That was my point. On 9/9 Abl seemed to be of the opinion they were collectable, however the loans now feature in the Lender Tax Statement for 22/23 as bad debt. I see. Yes, I agree, default does not mean irrecoverable. Thought the new criteria was 3 months missed payments but not sure where I got that from. Shoes & alcohol loans could be joining them the way things are going.
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Post by Ace on Sept 13, 2022 21:50:09 GMT
Where does it state the loans are irrecoverable ? It doesn't seem to have been stated by ABLrate anywhere, but all defaulted loans (orange on current investments list) have now been included as irrecoverable in the Bad Debt section of the current year's (2022-2023) tax statement. EDIT: Crossed with above. FURTHER EDIT: I've emailed ABLrate to ask for an explanation.
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blender
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Post by blender on Sept 13, 2022 22:11:05 GMT
Where does it state the loans are irrecoverable ? It doesn't seem to have been stated by ABLrate anywhere, but all defaulted loans (orange on current investments list) have now been included as irrecoverable in the Bad Debt section of the current year's (2022-2023) tax statement. The AF loans, or mine at least, were placed on the bad debt list in the tax statements on 8 September, the day before the report on the loan book which implied they were not irrecoverable, at least in part. I don't think that the sums shown in bad debt are regarded by Abl as totally irrecoverable. I think that all loans which have been defaulted by Abl automatically go to that statement. Otherwise they would have to decide how much of each loan was regarded as recoverable, which is a fine and changing judgement. It says: Principle Defaulted and not recovered in period and (not worrying that a lending platform cannot spell principal) makes no statement about future recoverability. The fact that the next line caters for subtracting actual later recoveries indicates that some of these loans may be recovered at least in part. This is also how Funding Circle (remember them?) do it. Loans need to be defaulted to start the recovery process, and to make demands on the PG (which is where I came in with my ISA holdings). If, when you default a loan, you accept that it is totally irrecoverable, then you are doing the lenders no favours.
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hubert
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Post by hubert on Sept 14, 2022 7:43:49 GMT
I refer to qwakuk posts yesterday. 97% of my 2022/3 tax year defaults stopped payments in the 2021/22 tax year. I would only need to self declare 11% of those defaulted loans as irrecoverable to wipe out my tax liability for 2021/22 tax year. I am seriously considering doing that as I feel this could be regarded as reasonable by HMRC. If I am wrong, and that amount is eventually recovered, I will than declare it & pay the tax. What say you.
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nick
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Post by nick on Sept 14, 2022 8:14:01 GMT
I refer to qwakuk posts yesterday. 97% of my 2022/3 tax year defaults stopped payments in the 2021/22 tax year. I would only need to self declare 11% of those defaulted loans as irrecoverable to wipe out my tax liability for 2021/22 tax year. I am seriously considering doing that as I feel this could be regarded as reasonable by HMRC. If I am wrong, and that amount is eventually recovered, I will than declare it & pay the tax. What say you. The guidance from HMRC (SAIM 12050 - see below) is pretty clear that absent declaration from the platform that the loan is 'irrecoverable', late or defaulted payment is not sufficient in itself to consider the loan 'irrecoverable'. The guidance does provide certain situations where a loan may be treated as being 'irrecoverable' even if there remains a prospect of some recovery - generally when the borrower has entered formal legal recovery procedures such a liquidation, administration, receivership or bankruptcy. If you do self declare some of the loans as irrecoverable in 2021/22 you should seek to support your position beyond just the fact that payment is very late - maybe request more specific details from ABL to support your claim. It is worth noting that HMRC can charge upto 30% of tax due plus penalty interest for careless errors rising to 70% for deliberate errors which they could argue if you made a claim that wasn't supported beyond the fact that the payments were late. That said, the risk of a set-off being queried is probably very low unless it results in a big swing in you tax payable position compared to prior years. Personally, I don't think it is worth the risk and hassle (in the event of your return being queried) of claiming the loss early unless ABL can help provide evidence to support such a position, particularly regarding timing. Extract from SAIM 12050: "When does a peer to peer loan become irrecoverable
A peer to peer loan may be accepted as having become irrecoverable when there is no reasonable prospect of the recovery of the loan. When assessing recoverability, the funds available and potentially available to the borrower must be considered. A claim therefore cannot be established simply because the borrower has insufficient liquidity on the date the loan had been called in.
Whether a loan has become irrecoverable should be judged on a case by case basis, however as the loan will be managed by a platform, the platform would usually be in a position to determine when a loan has become irrecoverable. The platform would then inform the lender that the loan had become irrecoverable.
If the platform does not undertake this action, then the lender may still determine that the loan has become irrecoverable. However it will be the responsibility of the lender to show that there is no reasonable prospect of the recovery of the loan and it is NOT simply a case of late payment.
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 security
When 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 taken
When 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.
Subsequent Recoveries
If a loan has been treated as irrecoverable in either of the scenarios outlined above then the relief will be given at the point where the loan becomes irrecoverable other than for the specified recovery actions.
If any value is then recovered, either through these actions or by any other means, then this recovery would then be taxed as additional interest received by the lender.
This is the same treatment as any other subsequent recovery of a relieved irrecoverable loans (more detail in Subsequent recoveries [SAIM 12200, see later]."
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ilmoro
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Post by ilmoro on Sept 14, 2022 9:09:21 GMT
I refer to qwakuk posts yesterday. 97% of my 2022/3 tax year defaults stopped payments in the 2021/22 tax year. I would only need to self declare 11% of those defaulted loans as irrecoverable to wipe out my tax liability for 2021/22 tax year. I am seriously considering doing that as I feel this could be regarded as reasonable by HMRC. If I am wrong, and that amount is eventually recovered, I will than declare it & pay the tax. What say you. Noone can advise you really ... it will come down to your own assessment of the risk v reward Sticking closely to the clear bits of the HMRC guidance is relatively risk free as the supporting documentation is there in either a tax statement or legal documents relating to insolvency Otherwise the reward is down to personal circumstances The risk is that HMRC looks at your filings closely ... more likely if there is a significant discrepancy against platform filings, large variation to previous tax, general workload, incentives to recover tax That HMRC doesnt agree with your interpretation, you cant support your position through lack of info ... and the consequences of that, tax payable, penalties The other point is your future tax position if you have to subsequently declare recoveries as interest income, always the danger that you are postponing liabilities to a time when they are less convenient. Bit surprised you have no losses from 21-22. Mine are actually higher in that year than this and they are indisputably claimable.
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blender
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Post by blender on Sept 14, 2022 9:35:45 GMT
For most people I would suggest that it is best, if you can, to go with what Abl put on the Tax statement, and either claim all the losses (defaults) that they post and pay tax on all the recoveries that they post. Or do neither of these things. At least you can then claim that you are simply doing what the platform implies you should do, which is an easy justification, and your tax return should align with the Abl reports to HMRC - or be easily reconciled.
The Abl tax report does not itemise the defaults or the recoveries from previous periods, and so if you do your own thing, for tax advantage, you have to keep track of all the loans personally, make/record/justify your personal decisions on irrecoverability and keep track of the future changes, progress, and payments of loans which you have assigned as historical losses. A lot of work, a lot of skill required to justify if needed, and some risk of getting involved in tax investigations. So I am saying not something to do casually. No way I could do it.
BTW, my defaults with Mr F's activities on 8 Sept were the first to go on my tax return since I started with Abl in 2014. But it's big and it hurts, and it's in an ISA.
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Post by Ace on Sept 14, 2022 9:50:41 GMT
It doesn't seem to have been stated by ABLrate anywhere, but all defaulted loans (orange on current investments list) have now been included as irrecoverable in the Bad Debt section of the current year's (2022-2023) tax statement. The AF loans, or mine at least, were placed on the bad debt list in the tax statements on 8 September, the day before the report on the loan book which implied they were not irrecoverable, at least in part. I don't think that the sums shown in bad debt are regarded by Abl as totally irrecoverable. I think that all loans which have been defaulted by Abl automatically go to that statement. Otherwise they would have to decide how much of each loan was regarded as recoverable, which is a fine and changing judgement. It says: Principle Defaulted and not recovered in period and (not worrying that a lending platform cannot spell principal) makes no statement about future recoverability. The fact that the next line caters for subtracting actual later recoveries indicates that some of these loans may be recovered at least in part. This is also how Funding Circle (remember them?) do it. Loans need to be defaulted to start the recovery process, and to make demands on the PG (which is where I came in with my ISA holdings). If, when you default a loan, you accept that it is totally irrecoverable, then you are doing the lenders no favours. That's all very well but it doesn't seem to agree with the guidance from HMRC, posted in this thread above and below, that ABLrate should not have declared the loans to be bad debt in the tax statement until they deem them to be irrecoverable.
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GreenZero
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Post by GreenZero on Sept 14, 2022 10:01:58 GMT
That was exactly my point Ace. I initially thought this had happend after ablrate update of 09/09/22, however eagle eyed blender noticed on 08/09/22 it showing on his 22/23 tax statement. Firstly, what were the factors on 08/09/22 which caused Abl to declare these loans bad debts and irrecoverable and secondly why not mention and explain this in their update of 09/09/22
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benaj
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Post by benaj on Sept 14, 2022 10:02:27 GMT
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Post by Badly Drawn Stickman on Sept 14, 2022 10:32:50 GMT
Depending how you interpret that (or more importantly HMRC) you could end up paying tax on returned capital should you be overly hasty. I am working on the assumption that ablrate intends to pursue a full recovery on every loan.
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blender
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Post by blender on Sept 14, 2022 10:50:39 GMT
That was exactly my point Ace . I initially thought this had happend after ablrate update of 09/09/22, however eagle eyed blender noticed on 08/09/22 it showing on his 22/23 tax statement. Firstly, what were the factors on 08/09/22 which caused Abl to declare these loans bad debts and irrecoverable and secondly why not mention and explain this in their update of 09/09/22 You are both quite right in that practice does not easily fit with HMRC guidance. I am sure that we will all agree that loans should be formally defaulted, and recovery started, before they become irrecoverable. The problem is that the HMRC guidance requires two states for the loan, defaulted but judged recoverable, and defaulted and irrecoverable. Only the second category should go into the tax statement. But creating and declaring those two states is not practical for a platform like Abl and probably not desirable, and in any case they could not do the IT needed in wind down. So they put all defaulted loans on the tax statement, as far as I know, and they state that they are defaulted and not recovered, which is not the same thing as irrecoverable. It's not exactly right, but the best they can do, sensibly. It follows FC practice. BTW, the only way I know to find when a default went to the tax statement is to keep altering the start or end date of the period until there is a change of the right size.
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