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Post by lb on Oct 19, 2015 11:01:12 GMT
According to one site I was just looking at it claims that tax is calculated on the total interest payable under the loan agreement with the borrower, and not on the net amount received by lenders. So if the platform charges fees to lenders, then we lenders have to still pay tax on that?
EG - I am receiving 6% interest per annum. Borrower however is paying 8% and the platform keeps 2%. Do I pay tax on 6% or 8%?
Also, if I have say 2% defaults, does this get deducted?
Thanks in advance
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Post by easteregg on Oct 19, 2015 11:13:47 GMT
It is my understanding that tax has to be paid on all interest, before fees and bad debts. Therefore if a company is charging a 1% fee, you are effectively paying 1.2% or 1.4% depending on your tax rate. This was the reason Zopa withdrew the lender fee and added a borrower fee of the same amount.
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Post by lb on Oct 19, 2015 11:33:36 GMT
It is my understanding that tax has to be paid on all interest, before fees and bad debts. Therefore if a company is charging a 1% fee, you are effectively paying 1.2% or 1.4% depending on your tax rate. This was the reason Zopa withdrew the lender fee and added a borrower fee of the same amount. well by this rationale, if I lend for example on Saving Stream I am receiving 12% but paying tax as though I received 18%? so if I am 40% tax payer for example I am paying 7.2% tax (40% of 18%) of my 12% - leaving me with 4.8%?
Hmmm
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arbster
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Post by arbster on Oct 19, 2015 11:39:14 GMT
No, that's not correct.
You're taxed on the total interest paid to you, before losses and lender fees, not the rate charged to the borrower. Also, FC, for example, has confirmed that the 1% fee is not a lender fee, therefore you are not taxed on that, and they have also confirmed that you can offset bad debts against interest earned.
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Post by lb on Oct 19, 2015 11:41:53 GMT
No, that's not correct. You're taxed on the total interest paid to you, before losses and lender fees, not the rate charged to the borrower. Also, FC, for example, has confirmed that the 1% fee is not a lender fee, therefore you are not taxed on that, and they have also confirmed that you can offset bad debts against interest earned. If a borrower is paying 18% and the lender is receiving 12%, what could the 6% margin possibly be classified as if it isn't a FEE?
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sam i am
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Post by sam i am on Oct 19, 2015 11:52:20 GMT
No, that's not correct. You're taxed on the total interest paid to you, before losses and lender fees, not the rate charged to the borrower. Also, FC, for example, has confirmed that the 1% fee is not a lender fee, therefore you are not taxed on that, and they have also confirmed that you can offset bad debts against interest earned. If a borrower is paying 18% and the lender is receiving 12%, what could the 6% margin possibly be classified as if it isn't a FEE?
It could be classified as a borrower fee, not a lender fee. And as far as I am aware the legislation change to allow bad debts to be written off against P2P interest earned is still in discussion but it is anticipated that when implemented it will apply from the beginning of the 2015/16 tax year.
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Post by chris on Oct 19, 2015 12:08:44 GMT
If a borrower is paying 18% and the lender is receiving 12%, what could the 6% margin possibly be classified as if it isn't a FEE?
It could be classified as a borrower fee, not a lender fee. And as far as I am aware the legislation change to allow bad debts to be written off against P2P interest earned is still in discussion but it is anticipated that when implemented it will apply from the beginning of the 2015/16 tax year. That depends on how the borrower contract is structured. We put a lot of time and effort into getting the contract right so that all fees are levied upon the borrower and lenders are fee free. I know HMRC have told at least one other platform that their lender fee is definitely a lender fee and cannot be viewed as a borrower fee due to the way the structured their contracts, hence they've had to restructure their loan docs going forward, so there is a chance others have made mistakes there. There are regulations about setting out fees and commissions that need to be correctly followed.
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Post by lb on Oct 19, 2015 12:12:28 GMT
It could be classified as a borrower fee, not a lender fee. And as far as I am aware the legislation change to allow bad debts to be written off against P2P interest earned is still in discussion but it is anticipated that when implemented it will apply from the beginning of the 2015/16 tax year. That depends on how the borrower contract is structured. We put a lot of time and effort into getting the contract right so that all fees are levied upon the borrower and lenders are fee free. I know HMRC have told at least one other platform that their lender fee is definitely a lender fee and cannot be viewed as a borrower fee due to the way the structured their contracts, hence they've had to restructure their loan docs going forward, so there is a chance others have made mistakes there. There are regulations about setting out fees and commissions that need to be correctly followed. personally I don't see how (on a P2P loan) an interest margin can be a fee to a borrower. regardless of what a contract says. either it is a fee to the lender or it is not P2P/36(h)
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Post by chris on Oct 19, 2015 12:13:51 GMT
That depends on how the borrower contract is structured. We put a lot of time and effort into getting the contract right so that all fees are levied upon the borrower and lenders are fee free. I know HMRC have told at least one other platform that their lender fee is definitely a lender fee and cannot be viewed as a borrower fee due to the way the structured their contracts, hence they've had to restructure their loan docs going forward, so there is a chance others have made mistakes there. There are regulations about setting out fees and commissions that need to be correctly followed. personally I don't see how (on a P2P loan) an interest margin can be a fee to a borrower. regardless of what a contract says. either it is a fee to the lender or it is not P2P/36(h) It's possible to charge a margin to the borrower, as I understand it. Our contract has been viewed by HMRC and they concurred with our interpretation.
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Post by lb on Oct 19, 2015 12:16:11 GMT
personally I don't see how (on a P2P loan) an interest margin can be a fee to a borrower. regardless of what a contract says. either it is a fee to the lender or it is not P2P/36(h) It's possible to charge a margin to the borrower, as I understand it. Our contract has been viewed by HMRC and they concurred with our interpretation. fair enough, you cant really do more than that! I think the upshot has to be that lenders are charged on NET income (interest - fees - bad debt) otherwise it just gets ridiculous
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Post by chris on Oct 19, 2015 12:18:35 GMT
It's possible to charge a margin to the borrower, as I understand it. Our contract has been viewed by HMRC and they concurred with our interpretation. fair enough, you cant really do more than that! I think the upshot has to be that lenders are charged on NET income (interest - fees - bad debt) otherwise it just gets ridiculous That's our intention and it appears to be HMRC's intention but we'll have to see where we end up. It's possibly also worth noting that several "p2p" platforms appear to be closer to collective investment schemes and are not making A36H compliant loans, at least with my understanding of things. They may end up being treated differently tax wise.
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pikestaff
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Post by pikestaff on Oct 19, 2015 14:12:33 GMT
It's possible to charge a margin to the borrower, as I understand it. Our contract has been viewed by HMRC and they concurred with our interpretation. fair enough, you cant really do more than that! I think the upshot has to be that lenders are charged on NET income (interest - fees - bad debt) otherwise it just gets ridiculous Things often are ridiculous in the tax world. Although there is no difference in substance between a borrower fee and a lender fee they are taxed differently. The consultation on the tax treatment of losses did not cover this point and I am not expecting it to be addressed in the legislation, but you never know...
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james
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Post by james on Oct 19, 2015 21:52:55 GMT
fair enough, you cant really do more than that! I think the upshot has to be that lenders are charged on NET income (interest - fees - bad debt) otherwise it just gets ridiculous That's our intention and it appears to be HMRC's intention but we'll have to see where we end up. It's possibly also worth noting that several "p2p" platforms appear to be closer to collective investment schemes and are not making A36H compliant loans, at least with my understanding of things. They may end up being treated differently tax wise. Indeed. For example, LendInvest and MarketInvoice are peer to peer but they appear not to be 36H and barring a change in proposed rules neither would be eligible for P2P deduction of losses or inclusion in an alternative finance ISA because 36H is the relevant definition for both. At least, it was, no telling what the final definitions will be. What disqualifies LendInvest is it doing the lending first then borrowing itself via the platform once the loan has been made.
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jonah
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Post by jonah on Oct 20, 2015 5:07:43 GMT
Isn't Wellesley similar in that it loans its on cash then sells on the loans to retail lenders?
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arbster
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Post by arbster on Oct 20, 2015 5:21:31 GMT
Isn't Wellesley similar in that it loans its on cash then sells on the loans to retail lenders? Wouldn't the same also apply if FC sells on the SM the loan parts they buy on the PM?
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