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Post by Jack Barlow on Apr 2, 2016 12:43:33 GMT
jonah, james is referring to selling at "0.1% of the outstanding capital value" (i.e. at a 99.9% discount), not at a 0.1% discount.
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james
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Post by james on Apr 2, 2016 13:43:32 GMT
what am I missing as a tiny discount is surely less of a cost than getting back less than half the loan in tax? As Jack Barlow wrote, that's a 99.9% discount, not a 0.1% discount. Don't worry about it, it happens to us all sometimes... 
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jonah
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Post by jonah on Apr 2, 2016 19:40:01 GMT
That makes more sense!
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Post by propman on Apr 3, 2016 12:54:29 GMT
what am I missing as a tiny discount is surely less of a cost than getting back less than half the loan in tax? As Jack Barlow wrote, that's a 99.9% discount, not a 0.1% discount. Don't worry about it, it happens to us all sometimes... I would have thought that accepting 10% or less is prima facie evidence that you believe it it irrecoverable!
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james
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Post by james on Apr 3, 2016 17:21:57 GMT
As Jack Barlow wrote, that's a 99.9% discount, not a 0.1% discount. Don't worry about it, it happens to us all sometimes... I would have thought that accepting 10% or less is prima facie evidence that you believe it it irrecoverable! Unfortunately HMRC's wording used absolutes so even if you sell a £10k loan for a penny you can't write off anything. Unless you wait to do it after it has become Irrecoverable. then you can sell it for £10k if you could find a buyer at that price. Of course you won't find such a buyer but for a a secured loan you're quite likely to get 100% recovery from security. So wait until you and/or the platform have concluded that it's irrecoverable before selling. For secured loans this is easy because again HMRC used an absolute and wrote that security is to be disregarded. So even though you're confident of recovering 100% from security you can write off all 100% initially. The huge mismatch between secured loans where you can ignore security that is likely to result in full recovery and unsecured where you can're write off early and may have to wait years is particularly unpleasant for consumer lending that's normally unsecured and also for a lot of lending to micro sole trader type businesses where again there is unlikely to be security. I don't think that the approach in this area makes a lot of sense. If it's claimed as relief and recovered later HMRC still gets the money so all HMRC is doing is writing in traps to catch the unwary and deny relief for bad debt that the law was supposed to be trying to provide. Write instead "wait three months from default before you can claim" would have done the job of preventing most early and fully recoverable claims and placed unsecured roughly on par with secured. On the positive side, at least the law lets us and platforms pick something sensible to do that complies with the law and ideally guidance (remembering that law trumps their guidance). So while I definitely wouldn't write off early, if a loan has been assigned to a debt collection agency and there has been no recovery for six months or a year or whatever I'd be comfortable enough using measures based on that and letting the statistics for recovery after claim show that I was making decent decisions on where to draw the line. On my to do list is some attempt at analysis for Bondora to work out just when recovery levels drop to suitably low levels to justify a particular decision point. Pragmatically I think that's going to be a year and possibly less with no payments at all being made, including none by all recovery efforts including after DCA assignment. For older loans that means that legal action would also have failed to lead to recovery some time after a positive decision because legal action would have been commenced within a few weeks at that time in Bondora's history and decisions were typically coming three months or so after the making of a claim (for loans to Estonian borrowers, it's very different in other countries,particularly Spain). Of course I'll be recording all of my reasoning behind such decisions in case HMRC does choose to ask me.
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pikestaff
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Post by pikestaff on Apr 3, 2016 21:37:22 GMT
...For secured loans this is easy because again HMRC used an absolute and wrote that security is to be disregarded. So even though you're confident of recovering 100% from security you can write off all 100% initially. Some care is needed here. My interpretation is you can only write off at the point where it would be irrecoverable but for the security. The security and the underlying asset(s) are two different things. Example 1: Loan to company secured on its debtors. The debtors are assets of the company and you cannot pretend that they don't exist. The company remains obliged to pay you, by realising the debtors itself if necessary. I don't think the existence of the security brings forward the date on which relief can be claimed, relative to a similar loan to an identical company without the security. Example 2: Loan to company secured on the director's house. Because the house is not an asset of the company, you CAN claim relief if the only way you will recover the loan is by going after the house. To the extent that you are successful you then have to repay the relief.
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james
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Post by james on Apr 3, 2016 23:54:03 GMT
...For secured loans this is easy because again HMRC used an absolute and wrote that security is to be disregarded. So even though you're confident of recovering 100% from security you can write off all 100% initially. Some care is needed here. My interpretation is you can only write off at the point where it would be irrecoverable but for the security. The security and the underlying asset(s) are two different things. Example 1: Loan to company secured on its debtors. The debtors are assets of the company and you cannot pretend that they don't exist. The company remains obliged to pay you, by realising the debtors itself if necessary. I don't think the existence of the security brings forward the date on which relief can be claimed, relative to a similar loan to an identical company without the security. Example 2: Loan to company secured on the director's house. Because the house is not an asset of the company, you CAN claim relief if the only way you will recover the loan is by going after the house. To the extent that you are successful you then have to repay the relief. says: " (8) In this section “irrecoverable” means irrecoverable other than by legal proceedings or by the exercise of any right granted by way of security for the loan." And the guidance says: " 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." I agree that the existence of the security doesn't bring forward the date at which the relief can be claimed in general, but what it does do is say that you can disregard the amount that you expect to get from the security in the decision making. I agree with example 2 but not because it is not an asset of the company, which is irrelevant. Rather, because it is the security. You can immediately write off the remaining balance of the loan once it is clear that you are going to have to rely on the security. I do not fully agree with example 1. For example, MoneyThing has written some loans secured ultimately on car hire purchase repayments by the consumers who are the customers of the borrower. Pretending for the moment that MoneyThing is a 36(h) platform, once the borrower has defaulted and you need to rely on that security you can write the loan off in spite of the stream of money coming in because that stream of money is part of the security. The money stream will become recovery money. If instead the company is keeping up with repayments using the stream of repayment money then the stream of money can't be ignored because there is no need to take ownership of the stream of repayment money to collect the debt.
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pikestaff
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Post by pikestaff on Apr 4, 2016 7:20:15 GMT
james - I think you may be confusing the security (or, as the law puts it, the "right granted by way of security") with the asset over which the security is given. It's an easy mistake to make, because the guidance uses the single word "security" as a shorthand for the right. Lenders can disregard the right granted by way of security, but if the asset belongs to the borrower they cannot disregard the asset. Thus: - If I make an unsecured loan to a company which has a bunch of debtors I can only claim relief when it is irrecoverable (other than by forcing the borrower into admininstration, liquidation etc).
- If instead I make the loan secured on the debtors, the legislation
permits requires me to disregard the right granted by way of security. But I cannot pretend the debtors don't exist. Basically, the law is telling me that I can assess recoverability as if the loan was unsecured.
In your MoneyThing example, it will depend on the terms of the loans, which I am not familiar with. But here are a couple of possibilities: - If the loans are simple loans to a borrower (finance house or whoever) secured on HP agreements, lenders would be
permitted required to assess recoverability from the borrower as if the loans were unsecured loans to the borrower, who would however still have the benefit of the income stream from the HP agreements and the security under those agreements, and may have contractual obligations to the lenders to manage them properly. There is no provision for lenders to disregard any security that their borrowers enjoy, or any obligations other than security obligations that their borrowers may have.
- Alternatively, if the loans are participations in the HP agreements themselves, I think lenders would be
permitted required to assess the recoverability of the amounts due to them under those participations as if they were unsecured loans to the ultimate customers, without the ability to go after their cars.
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Post by propman on Apr 4, 2016 8:11:35 GMT
I don't find the guidance very helpful because it seems to consider a parallel universe where you will only receive the money that can be recovered without going to Court. Some consumer borrowers definitely seem to place their head firmly underground until they receive Court proceedings. I had one who paid no more than 0.2% of the debt pa until finally brought to Court when payments increased 100 fold. I know that this borrower would never have met the criteria (as payments only briefly stopped in their entirety), but there have been others who stop all payments until finally dragged to Court. Would these be rightly treated as irrecoverable even 'though the borrower has an income source?
More realistically, if sale of assets is required to pay creditors, businesses might resist in the hope of doing a good deal while they still have a business and it is only the exercise of the security powers or other insolvency procedure that forces them to stop and realise their assets. this is because they are aware that they will be insolvent if they recognise the additional costs of ceasing business.
Paradoxically, it might be better to have a first charge loan where there is a substantial second charge to someone else. Then ignoring the first charge, payments would go to the second charge holder thus allowing the first charge holder to claim their loan is irrecoverable.
- PM
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pikestaff
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Post by pikestaff on Apr 6, 2016 7:07:32 GMT
I have revised my post p2pindependentforum.com/post/104652/thread setting out my interpretation of the guidance. I now believe that if loans would have qualified to be treated as irrecoverable prior to 6/4/2015 they will not be eligible for the new relief. Lenders will instead be left to make a capital loss claim, if this of any use to them, once the loan is actually irrecoverable. More explanation there. I've also made a couple of minor consequential amendments to my 4 April post above. |
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duck
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Post by duck on Apr 6, 2016 10:17:12 GMT
I note from previous threads/posts on this subject that initially it appeared that loans to individuals might well have been excluded p2pindependentforum.com/post/44400/thread this appears to have been dropped, the guidance referring to both People and Businesses. as mentioned by pikestaff on that earlier thread, therein lies a tension p2pindependentforum.com/post/82772/threadTaking pikestaffs latest interpretation I agree, this is my understanding following this mornings reading ....... but it doesn't IMHO fit all circumstances. Yes to the AC loans where this topic originally surfaced (wrt the tax statement) but how does this approach fit in with Bondora where DCA's are being sent in 7 days after each and every late payment? The loan at 7 days is not irrecoverable (most recovered on their own prior to this change of approach) yet the gap between non-repayment and what would be viewed as the first step of legal proceedings (loan assigned) is just 7 days. Is the date that a loan becomes irrecoverable not dependent on the platform processes? |
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james
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Post by james on Apr 6, 2016 11:23:19 GMT
how does this approach fit in with Bondora where DCA's are being sent in 7 days after each and every late payment? The loan at 7 days is not irrecoverable (most recovered on their own prior to this change of approach) yet the gap between non-repayment and what would be viewed as the first step of legal proceedings (loan assigned) is just 7 days. Is the date that a loan becomes irrecoverable not dependent on the platform processes? Previously Bondora would also take legal action almost immediately without regard to potential recoverability by non-legal means. Platforms and individuals will naturally need to take into account how platforms work to determine when it's appropriate to consider something to be treatable as irrecoverable. My personal view on Bondora is that now they are doing three DCAs for three months each before even considering legal action, if there is no recovery during that time there is no reasonable prospect of recovery by non-legal means after the nine months has passed, even if legal action is not commenced then. While previously with them going legal almost immediately, there was a high prospect of recovery by non-legal means even though legal action was commenced and it wasn't sensible to consider a loan to be effectively irrecoverable until well after a court had given a decision, typically within just a few months of default in Estonia, before starting really serous chasing after that decision had been given. It's pretty much a complete flip in timing terms based on how the platform changed its debt collection practices, from legal first to legal second, and what that implies for potential recoverability.
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Post by mrclondon on Apr 6, 2016 15:15:13 GMT
For reference:
I have started a thread on the FK board which includes their email sent out on 4th April 2016 , and my commentary on it.
Also, there is a thread on the AC board discussing the possible classification of their distressed loans.
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pip
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Post by pip on Apr 6, 2016 22:38:14 GMT
Guys I have tried to make a few idiot guide bullet points for any investors wondering what this all means. Please note I am not using hmrc terminology but just how for the average investor bad debt relief will work in practice.
- It's up to a platform to comply with hmrc guidance about when a loan can be offset against interest for tax.
- the tax statement from each platform should give a breakdown of any loans which can be offset against interest
- on your tax return under untaxed income section simply add up all the tax statements (if some platforms are negative these can be offset against others)
- in future years you may get recoveries from loans which you previously offset against interest in 15/16, in these cases these will appear on next years tax statement
- loans which a platform has not decided to include on your tax statement as bad debt in 15/16 should not be offset against interest on your tax return. The platform may decide to include it on next years, in which case you will have to wait until the end of 16/17 and offset it against interest in that year.
Please shout if people disagree, but thought it would help to make an easy to understand guide of what investors need to do without all the hmrc jargon.
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james
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Post by james on Apr 7, 2016 0:40:12 GMT
It's up to the tax payer to get things right but HMRC is unlikely to penalise a tax payer who relied on a platform's reporting.
Not all platforms will comply with any of HMRC's desires, notably perhaps not foreign platforms and foreign platforms do provide an opportunity for the relief whether regulated in the UK as 36H or under comparable legislation in other EU countries. In these cases it's up to the investors to decide how to proceed and be willing and able to explain to HMRC if asked.
You must claim for loans which became irrecoverable in 2015/16 in a 2015/16 tax year's tax return or letter or whatever. Neither you nor the platform has discretion to do it in a later year. Hopefully at least the UK platforms will do it for 2015/16 and get it right.
You don't have to wait for the platform, you can file a tax return now using a reasonable estimate and update it later once the platforms that are relevant have produced the statements, if you're using ones which do that. Mention something along the lines of "the gross interest is partly estimated until tax statements have been provided by all relevant providers".
Life's much simpler if using UK platforms that give perfect tax statements no later than 6 April or for tax payers who are content to wait until well after 6 April to tell HMRC. Those who are expecting refunds may well not be so fortunate in the real world and may use estimates instead to get their money from HMRC.
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