blender
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Fees
Apr 1, 2015 17:05:24 GMT
Post by blender on Apr 1, 2015 17:05:24 GMT
The changes can be read about here www.fundingcircle.com/blog/2015/04/talking-tax . They have confirmed that we are all right up to the end of this FY. The problem is presumably the point I made above, in that the borrower pays us the full interest and FC charges us a related fee. So we actually get the full interest which would be taxable from 6th April. The change seems to be that from 6th April FC will claim 1% of the interest rate (which is numerically the same thing) and actually deduct their fee from the repayments so that our gross is net (if you see what I mean). It is really no different from FC taking their borrower fee from the money we lend rather than giving it all to the borrower and asking for the fee back. The change is presumably to avoid paying tax on interest before fees. I imagine our transaction statements will now include single netted off payments for each loan part. It should be a simple change (fingers crossed). If you have previously declared gross interest then good luck with getting a refund. But think hard about what you declare for 2014/15. |
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Fees
Jul 23, 2015 10:11:34 GMT
Post by transo on Jul 23, 2015 10:11:34 GMT
So does anyone actually understand what the tax position is now? Will we pay it on gross interest earned (before deduction of the "servicing fee"), or just on the interest after that is deducted? Although Frumpy Carrots explained that they're changing it to take it directly from the repayments as far as I can tell all that's changed is that the entries on my statements now read "Servicing fee ..." rather than "Lender fee ...", which they read up until 14/04/2015. I still get the same sequence of three transactions per repayment (credit or principal repaid, credit of interest paid, deduction of fee), so the book-keeping appears to be the same.
I can't believe just changing the statement text satisfies HMRC so I'm currently pricing loans on the basis I'll be paying tax on the gross interest received, but that means I'm being priced out of the market even at the current elevated rates, except at short loan terms. FC's FAQs appear to be no help at all, so wondered what basis others were working on.
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TitoPuente
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Fees
Jul 23, 2015 12:18:48 GMT
Post by TitoPuente on Jul 23, 2015 12:18:48 GMT
Not a tax expert, so I can't meaningfully contribute to what's already known. But where the FC tax statement says 'Net payments made to you', I report that amount as untaxed UK interest to HMRC for 2014/15. I plan to do the same for 2015/16. I concur. I will report the "Net payments made to you" as interests before tax. If HMRC has any objection I am prepared to defend my position.
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blender
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Fees
Jul 23, 2015 12:34:35 GMT
Post by blender on Jul 23, 2015 12:34:35 GMT
So does anyone actually understand what the tax position is now? Will we pay it on gross interest earned (before deduction of the "servicing fee"), or just on the interest after that is deducted? Although Frumpy Carrots explained that they're changing it to take it directly from the repayments as far as I can tell all that's changed is that the entries on my statements now read "Servicing fee ..." rather than "Lender fee ...", which they read up until 14/04/2015. I still get the same sequence of three transactions per repayment (credit or principal repaid, credit of interest paid, deduction of fee), so the book-keeping appears to be the same. I can't believe just changing the statement text satisfies HMRC so I'm currently pricing loans on the basis I'll be paying tax on the gross interest received, but that means I'm being priced out of the market even at the current elevated rates, except at short loan terms. FC's FAQs appear to be no help at all, so wondered what basis others were working on. There was a subsequent discussion in another place following statements by FC. From April 2015 they changed the T&C's to make it clear that the service fee was not charged to the lender, and so from this fiscal year it is clear that the net payments are taxable as income. This followed advice from HMRC that they would charge tax on gross interest from this April. If you declare net payments made to you for 2014/15 you will be one of a great number. Suggest you see forum.fundingcircle.com/forum/talk-to-fellow-members/general-chat/10912-tax-liability and follow up the references.
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am
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Fees
Jul 23, 2015 14:38:08 GMT
jonah likes this
Post by am on Jul 23, 2015 14:38:08 GMT
On the one had FC's T&Cs say that the administration fee is charged to the borrower.
On the other hand the rates quoted to lenders on both primary and secondary markets, and on the investment summary page, are stated gross, not net of fees, and the fees are incorporated in the transaction log.
I don't see the sense in the HMRC charging tax on gross income rather than income net of expenses (other than it increases their take), so I'm a little concerned that HMRC might argue that FC's processes demonstrate that the fees are charged to the borrower rather than to the lender.
I can see that dropping headline interest rates by 1% would disrupt the market, but I think that FC should remove the fees from the transaction logs, and quote both borrower and lender rates elsewhere.
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blender
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Fees
Jul 23, 2015 16:18:06 GMT
Post by blender on Jul 23, 2015 16:18:06 GMT
I think that FC have done what is necessary for HMRC to be content. There is political goodwill behind the growth of p2p lending, especially for finance to businesses, and I do not believe there was ever a wish to tax our income before fees. The problem seemed to me to be a technical one because of the way in with the virtual cash flowed in p2p - the gross interest was paid to the lender's account and the lender paid a fee (specifically a charge on the lender) to the operator, which is not the same thing as the operator deducting the fee and paying the net to the lender. Presumably the operators had until this April to fix that, otherwise HMRC would tax the gross. FC have now defined the 1% fee as a charge on the borrower and in the transactions it is a 'servicing fee' in respect of that lender's loan part, but it is removed from the payment at the point of being paid.
I do not think they have any other way of doing it - other than a massive technical and presentational change by which the borrower pays FC a direct 1% and a lower interest rate to the lenders. This would have to apply to all the loans in the book on 6th April 2015. No practical difference to what is received, but huge disproportionate implications for the platform. It does seem that HMRC are wishing to be supportive and that the changes satisfy them. There really is no benefit in knocking it. We have always had to deduct 1% from the gross rate to get the net rate before tax - this has not changed.
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Fees
Jul 23, 2015 22:13:59 GMT
Post by transo on Jul 23, 2015 22:13:59 GMT
I do not think they have any other way of doing it - other than a massive technical and presentational change by which the borrower pays FC a direct 1% and a lower interest rate to the lenders. This would have to apply to all the loans in the book on 6th April 2015. No practical difference to what is received, but huge disproportionate implications for the platform. It does seem that HMRC are wishing to be supportive and that the changes satisfy them. There really is no benefit in knocking it. We have always had to deduct 1% from the gross rate to get the net rate before tax - this has not changed. I think that's what worries me though: that FC appear literally just to have changed the text they put in the statements. The gross interest still flows into our "virtual cash" and the fee is then deducted from there. Zopa seem to have gone for much more root + branch changes (that they still haven't finished) and no longer show the fee. This implies to me they think it needs more than just a change of text to satisfy the HMRC regs.
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blender
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Fees
Jul 23, 2015 22:29:00 GMT
Post by blender on Jul 23, 2015 22:29:00 GMT
I understand that concern but think that FC will have made sure of the position. The 1% was never ours, and never available to us. As Father Ted would say, the money was just resting in my account - momentarily.
I know nothing of Zopa.
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