mikes1531
Member of DD Central
Posts: 6,453
Likes: 2,320
|
Post by mikes1531 on Nov 29, 2015 19:13:42 GMT
So a buyer of a 5 month old loan is only forgoing a proportion of the final months interest if they pay a premium (as quantified by the effective rate at the time of purchase) , plus as you rightly remind us, the tax liability on the purchased accrued interest (which for non tax payers is of course zero). Since the minimum premium is 1%, the purchase of a 5 month old 12% loan at a premium is going to generate no income at all -- and that's before tax. Might that be why FS have limited the SM to parts with more than 30 days left? And I don't know if this will make a significant difference but come April, when everyone should be entitled to have a bit of interest income that's not taxed, there may be a few more people who do pay tax but in this context will be 'non-taxpayers' because their interest income is below the tax threshold. OTOH, I'd be a bit surprised if many whose interest income is that low would be wanting to buy loan parts on FS's SM.
|
|
mikes1531
Member of DD Central
Posts: 6,453
Likes: 2,320
|
Post by mikes1531 on Nov 29, 2015 19:30:36 GMT
What is there to stop me using this information (and having it available for HMRC enquiries) to deduct the accrued interest from the final 'interest paid' at term end (if I was to hold the investment to term)
I'm assuming here that the only 'evidence' I would present to HMRC would be my spreadsheets and screen dumps (as I have previously with a couple of platforms) thereby taking out of the equation the FS view of interest paid and any 'official' tax certificate that may be available.
I can think of a couple of possible reasons, but is this approach fatally flawed? There's probably nothing to stop you from preparing your tax return that way. In fact, it seems to me to be the logical approach to take. However... - Unless the seller takes the same approach -- and while I think they should, it's been suggested that isn't the 'correct' way given the current tax rules -- there will be a net underpayment of tax on the interest earned on that loan part, so HMRC/HMG is unlikely to be happy. And there's probably no way for HMRC to chase the seller unless FS could be compelled to supply that info.
- What exactly are fundingsecure obligated to supply to HMRC in terms of who earned how much? They supply that info to us for us to use in preparing our tax returns, but do they also supply that data to HMRC? And do HMRC check that data against the numbers on our tax returns?
- You have to balance the amount of tax you would save against the aggro you'd have if HMRC were to ask you to justify all the numbers in your tax return.
|
|
|
|
Post by mrclondon on Nov 29, 2015 19:47:49 GMT
I'm assuming here that the only 'evidence' I would present to HMRC would be my spreadsheets and screen dumps (as I have previously with a couple of platforms) thereby taking out of the equation the FS view of interest paid and any 'official' tax certificate that may be available. I can think of a couple of possible reasons, but is this approach fatally flawed? The only issue is approach HMRC take with investigations. Their computers spot an anomoly with your self assessment return - perhaps something as simple as you have bought and resold a few high value items on ebay in a particular year and you have not declared a value for "other income" as you feel they were personal sales not trade; and / or the total untaxed interest you've declared is less than the sum of the figures provided by the p2p platforms to HMRC. Both are enough to trigger an investigation into your previous 7 (?) years tax returns. I know people who have faced this - the effort and stress of providing the evidence is unbelievable. I mentioned a few days ago unless you have accountancy qualifications it is best to simply declare what ever is on the tax statements as this is the figure the HMRC computers will use to trigger investigations. Those with accountancy qualifications need to take extra care if they could be reasonably be expected to know the tax statement is wrong as the penalities applied are likely to be greater than just backdated interest on the tax overdue. EDIT: For those that missed the press reports of the new HMRC data mining capabilities earlier this year, this Telegraph article is representative.
|
|
duck
Member of DD Central
Posts: 2,884 
Likes: 6,979
|
Post by duck on Nov 30, 2015 5:47:03 GMT
Thanks mikes1531 and mrclondon
It was the possibility of inconsistency between mine and the platforms figures that had sprung instantly to my mind along with the need to be consistent - if loans were sold early there would be a need to account for this paid accrued interest in a similar manner.
The threat of investigation is real (I have insurances with my accountants to cover this possibility) but an investigation is certainly not something that I would want to go through!
ablrate have a similar 'issue' with their aftermarket although with monthly interest I have found over the past few years that the extra taxable amount is so small that it is negligible at year end even if you are quite active on the aftermarket.
Accepting that the system on FS can be 'gamed'* by selling early my current thinking is to 'go with the flow' ..... but to have a calc on my spreadsheet that balances (in actual £) the benefits of selling early and the negative effects of paying accrued interest on secondary market purchases. It shouldn't be hard to keep the scales tipping in the correct direction.
*gamed is the wrong word since it appears that HMRC rules are being applied.
|
|
bob76
Posts: 103
Likes: 22
|
Post by bob76 on Nov 30, 2015 6:17:29 GMT
EDIT: For those that missed the press reports of the new HMRC data mining capabilities earlier this year, this Telegraph article is representative. Well, if there is an article in the press stating their impressive new "data mining" capability, then it must be true then. I don't see why HMRC would lie about it...
|
|
|
|
Post by reeknralf on Nov 30, 2015 11:28:12 GMT
I do not understand why this premiums/accrued interest/tax business has created so much noise. You now have the choice of taking profit as capital or interest. At worst this will be neutral, and for most investors it will be positive.
If you find the premiums too high, you always have the option of not buying or selling. Again, this is either neutral or positive.
I could never have imagined so much grumbling about returns being increased.
All this because some unknown number of investors might stray too far from the shore, might do something dim, might whine about it, and this might have knock-on regulatory effects for the rest of us. I am very pleased with the SM, and will now be reversing my withdrawal from this platform.
|
|
duck
Member of DD Central
Posts: 2,884
Likes: 6,979
|
Post by duck on Nov 30, 2015 11:52:24 GMT
I do not understand why this premiums/accrued interest/tax business has created so much noise. You now have the choice of taking profit as capital or interest. At worst this will be neutral, and for most investors it will be positive. If you find the premiums too high, you always have the option of not buying or selling. Again, this is either neutral or positive. I could never have imagined so much grumbling about returns being increased. All this because some unknown number of investors might stray too far from the shore, might do something dim, might whine about it, and this might have knock-on regulatory effects for the rest of us. I am very pleased with the SM, and will now be reversing my withdrawal from this platform. Personally I do not view the 'noise' as negative in any way. I posted earlier in the thread my approval for the new SM and I have already used it on a few occasions. My desire is simple (insert your own jokes in here) to ensure that I understand the SM and any implications from the way it is set up. Once understood I can then use it as best fits my needs.
|
|
ablender
Member of DD Central
Posts: 2,204
Likes: 555
|
Post by ablender on Nov 30, 2015 13:08:20 GMT
..... and this might have knock-on regulatory effects for the rest of us. ..... And don't you think that this on its own is enough to warrant all the noise that has been raised and more?
|
|
nick
Member of DD Central
Posts: 1,056
Likes: 825
|
Post by nick on Nov 30, 2015 23:13:22 GMT
I do not understand why this premiums/accrued interest/tax business has created so much noise. You now have the choice of taking profit as capital or interest. At worst this will be neutral, and for most investors it will be positive. If you find the premiums too high, you always have the option of not buying or selling. Again, this is either neutral or positive. I could never have imagined so much grumbling about returns being increased. All this because some unknown number of investors might stray too far from the shore, might do something dim, might whine about it, and this might have knock-on regulatory effects for the rest of us. I am very pleased with the SM, and will now be reversing my withdrawal from this platform. It creating a lot of noise as 'profit' taken as interest will always be taxed whilst profit taken as 'capital' is not subject to any tax (provided you are the original subscriber to the loan) as there is no CGT on transfers of simple debts.
|
|
mikes1531
Member of DD Central
Posts: 6,453
Likes: 2,320
|
Post by mikes1531 on Dec 1, 2015 3:30:32 GMT
It creating a lot of noise as 'profit' taken as interest will always be taxed whilst profit taken as 'capital' is not subject to any tax (provided you are the original subscriber to the loan) as there is no CGT on transfers of simple debts. What does this mean for someone who buys a loan part via the SM and then sells that part before maturity?
|
|
ablender
Member of DD Central
Posts: 2,204
Likes: 555
|
Post by ablender on Dec 1, 2015 6:23:37 GMT
It sounds to me as a passing-the-hot-potato or a triggered-handgrenade situation.
|
|
nick
Member of DD Central
Posts: 1,056
Likes: 825
|
Post by nick on Dec 1, 2015 10:34:51 GMT
It creating a lot of noise as 'profit' taken as interest will always be taxed whilst profit taken as 'capital' is not subject to any tax (provided you are the original subscriber to the loan) as there is no CGT on transfers of simple debts. What does this mean for someone who buys a loan part via the SM and then sells that part before maturity? If you purchase a loan part on the secondary market (ie you are not the original subscriber of the debt), all subsequent resale before maturity will be a chargeable gain subject to CGT. HMRC provide a summary of the taxation of simple and other debts here: www.gov.uk/government/publications/debts-and-capital-gains-tax-hs296-self-assessment-helpsheet/hs296-debts-and-capital-gains-tax-2015. It is interesting to note that FC get round this issue when lenders buy and sell on thier SM by deeming each sale as the repayment of the original loan part and creation of a new loan part (held by the purchaser) via novation - the end result being that the buyer of the loan part is considered to by the original subscriber of a newly created loan rather than acquiring the original loan part. I'm not sure how FS are going to report the gains/profits on sale, but I would stick with however they report as the hassle factor of ever having to defend a different calc if ever queried by HMRC is not worth it unless there is a significant amount of money at stake.
|
|
|
|
Post by fundingsecure on Dec 1, 2015 11:30:00 GMT
We have made further changes to the Secondary Market, accommodating some of the feedback we have received from our investors directly and via the forum.
The changes are as follows;
1. Investors will be prohibited from placing investments on the secondary market which show a negative effective rate. An error message will be displayed when placing the sale requesting the seller to reduce the premium if the effective rate is negative.
2. Investments which currently show a negative effective rate on the secondary market have been removed. Investors will need to start the sale process again.
3. Investments that remain on the Secondary Market for longer than 14 days will be placed on hold with the status showing as "timed out". These will no longer be visible to prospective purchasers. Investors will need to reactivate the sale by clicking on the “timed out” button, or by editing the sale.
We believe these changes will help improve the functioning of the secondary market.
FundingSecure
|
|
|
|
Post by Financial Thing on Dec 1, 2015 12:44:12 GMT
fundingsecure Or you could just remove premiums, therefore eliminating the tax hassles we will face and the loan flippers and increase the liquidity and movement. Otherwise you will continue to see loans listed for 0.1% return (better than -30% I suppose) and 29 pages of loans with premiums collecting dust. Simple.
|
|
webwiz
Posts: 1,133
Likes: 210
|
Post by webwiz on Dec 1, 2015 14:00:39 GMT
An improvement, but removing premiums entirely, or at least restricting them, would be better.
|
|
