SteveT
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Post by SteveT on Apr 13, 2016 8:49:39 GMT
andrewholgate , HMRC guidance SAIM 12000 appears to show a lot of difference between a non-performing loan becoming "irrecoverable" (for income tax relief purposes, with any future recoveries then taxable as future income) and a definitive final loss being declared (with no further chance of recoveries). Will AC be following this guidance from the start of the 2016/17 tax year and declaring when you deem a non-performing loan may be regarded as "irrecoverable" for income tax relief purposes? There is a lot of new tax guidance flying around at present and I am working on clarifying it all. In short, yes we will work within the law. The loose part of the law is when do they become "irrecoverable". For example, we know on two cases the business assets have been sold and that has realised a certain amount. We then have to rely on the PG's that have been pledged. At this staged we do not have full clarity on what assets the person has or hasn't got. Do we declare it as irrecoverable or do we continue to pursue the unknown to make it a known. It is complex, especially in secured lending when there are different avenues for recovery. A This section of SAIM 12050 appears to address that point exactly: "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."
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SteveT
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Post by SteveT on Apr 2, 2017 8:54:00 GMT
andrewholgate , with just a couple of days of the 2016/17 tax year remaining, the AC Tax Statement still appears only to summarise interest earned, with no mention of claimable Bad Debt for the various AC loans that entered legal recovery procedures during the year (eg. #45, #123, #208, etc.) Contrast this with the Bad Debt summary provided in FC's Tax Statement:
Principal Defaulted and not recovered in period: -£xx.xx
Discounts on acquisitions of above bad debts on secondary market: £0.00
Total eligible bad debt in period: -£xx.xx
Recoveries on principal defaulted in prior periods: £xx.xxThe FS Tax Statement also summarises claimable Bad Debts on their defaulted loans, helpfully adding a "+" toggle that details the loans involved:
Capital losses from defaulted loans £xx.xx +
Capital recovered from defaulted loans £xx.xx + Will an equivalent summary of claimable Bad Debt, and also Recoveries from prior periods (eg #57), be added to AC's tax statements in time for 2016/17 reporting (definitions as per HMRC guidance SAIM 12050)? If not, why not? Thanks in advance.
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pikestaff
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Post by pikestaff on Apr 2, 2017 12:33:50 GMT
...Will an equivalent summary of claimable Bad Debt, and also Recoveries from prior periods (eg #57), be added to AC's tax statements in time for 2016/17 reporting (definitions as per HMRC guidance SAIM 12050)? If not, why not? Thanks in advance. For 2016/17 the platforms are under a statutory obligation to report interest net of deductible losses, so they will have to do something along these lines. I'm not sure what the deadline is, but probably the end of May (as with bank interest historically).
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Post by andrewholgate on Apr 3, 2017 8:32:33 GMT
I'll come back to you on this. Technically, the files where losses will occur or are likely are still open so the loss is yet to crystalise.
Let me come back to you.
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SteveT
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Post by SteveT on Apr 3, 2017 8:37:15 GMT
I'll come back to you on this. Technically, the files where losses will occur or are likely are still open so the loss is yet to crystalise. Let me come back to you. Yes, I appreciate that but it's irrelevant with regard to the Tax Statement. The trigger point for a distressed loan becoming deductible for tax purposes under SAIM 12050 is when it enters "legal recovery procedures", not when a final loss eventually crystallises. Recoveries made after that trigger point are then taxed as income in the tax year they are recovered.
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jlend
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Post by jlend on Apr 3, 2017 8:47:21 GMT
Also interested to know how SAIM 12050 will be applied to loans in legal recovery procedures on the markets covered by provision funds.
How will these loans be shown on the tax statement.
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ianj
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Post by ianj on Apr 3, 2017 14:56:19 GMT
I'll come back to you on this. Technically, the files where losses will occur or are likely are still open so the loss is yet to crystalise. Let me come back to you. Yes, I appreciate that but it's irrelevant with regard to the Tax Statement. The trigger point for a distressed loan becoming deductible for tax purposes under SAIM 12050 is when it enters "legal recovery procedures", not when a final loss eventually crystallises. Recoveries made after that trigger point are then taxed as income in the tax year they are recovered. I have just reread HMRC guidance on the matter and was drawn to the highlighted text below..... I hope I'm wrong, but ISTM the above appears to imply that even if commencement of "legal recovery procedures" makes a loan decutable, there appears to be no statutory requirement for a platform to provide any supporting evidence, leaving us with the leg-work. While, at one end of the default scale, I can appreciate why there would be a reluctance to categorise a loan such as #199, where there is high confidence of a full and timely recovery, in as negative light as , say, The Plumber and The Optician at the other end, any failure by a platform to provide evidence of any deductable loss (actual or potential) may well result in lenders choosing not to maximise the benefits of this tax reduction measure due to a perceived complexity of dealing with HMRC. P.S. Email from FS today to announce that their tax statement now provides details (total and per loan) for losses and recoveries, so it can be done.
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Post by gusgorilla on Apr 4, 2017 21:02:16 GMT
Yes, I appreciate that but it's irrelevant with regard to the Tax Statement. The trigger point for a distressed loan becoming deductible for tax purposes under SAIM 12050 is when it enters "legal recovery procedures", not when a final loss eventually crystallises. Recoveries made after that trigger point are then taxed as income in the tax year they are recovered. I have just reread HMRC guidance on the matter and was drawn to the highlighted text below..... I hope I'm wrong, but ISTM the above appears to imply that even if commencement of "legal recovery procedures" makes a loan decutable, there appears to be no statutory requirement for a platform to provide any supporting evidence, leaving us with the leg-work. While, at one end of the default scale, I can appreciate why there would be a reluctance to categorise a loan such as #199, where there is high confidence of a full and timely recovery, in as negative light as , say, The Plumber and The Optician at the other end, any failure by a platform to provide evidence of any deductable loss (actual or potential) may well result in lenders choosing not to maximise the benefits of this tax reduction measure due to a perceived complexity of dealing with HMRC. P.S. Email from FS today to announce that their tax statement now provides details (total and per loan) for losses and recoveries, so it can be done. Agreed, it seems to me that FS have the right way of handling this (as I said in another thread). The FS tax statement looks like this: A Total interest earned £X B Total tax withheld £0.00 C Capital losses from defaulted loans £Y D Capital recovered from defaulted loans £Z Net, taxable interest is simply A - C + D. If some or all of a loan defaulted in one year is recovered in a subsequent year then it will appear in that year's tax statement so it all works out nicely regardless of when/if recovery occurs.
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pikestaff
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Post by pikestaff on Apr 4, 2017 21:41:20 GMT
...I have just reread HMRC guidance on the matter and was drawn to the highlighted text below..... I hope I'm wrong, but ISTM the above appears to imply that even if commencement of "legal recovery procedures" makes a loan decutable, there appears to be no statutory requirement for a platform to provide any supporting evidence, leaving us with the leg-work... My belief that there is some kind of statutory obligation flows from the following extract from the same guidance (SAIM 12220): "From 6 April 2016 relief for irrecoverable P2P loans against income from P2P loans that are made through the same platform will be given automatically, that is without the need for the lender to make a claim in a tax return." There is no way that it can be given automatically unless the amount declared by platforms to HMRC is adjusted by the platforms for deductible losses (less recoveries). Unfortunately I've not been able to find chapter and verse.
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ianj
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Post by ianj on Apr 5, 2017 10:54:53 GMT
Thanks for that background pikestaff, I hope you are correct. |
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SteveT
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Post by SteveT on Apr 5, 2017 15:11:26 GMT
Slightly daunted to calculate that my total AC loan capital which became "irrecoverable" for tax purposes in 2016/17 (#26, #45, #123, #199, #208, #230) amounts to 47% of my total AC interest in the year. And I thought I'd been quite careful / lucky to avoid some of the smellier ones! Can others beat this?
On the plus side, there's also a £9.19 recovery from #57.
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Post by gusgorilla on Apr 5, 2017 15:32:59 GMT
Slightly daunted to calculate that my total AC loan capital which became "irrecoverable" for tax purposes in 2016/17 (#26, #45, #123, #199, #208, #230) amounts to 47% of my total AC interest in the year. And I thought I'd been quite careful / lucky to avoid some of the smellier ones! Can others beat this? On the plus side, there's also a £9.19 recovery from #57. Oh dear. I have just been assured by AC over the phone that they have never had a capital loss. Perhaps there was some misunderstanding by me or them. I was asking them why their Tax Statement page (on the Reports menu) did not have a figure for losses. Sounds like I need to phone them back. andrewholgate or other AC people can you please clarify?
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ilmoro
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Post by ilmoro on Apr 5, 2017 16:02:31 GMT
Slightly daunted to calculate that my total AC loan capital which became "irrecoverable" for tax purposes in 2016/17 (#26, #45, #123, #199, #208, #230) amounts to 47% of my total AC interest in the year. And I thought I'd been quite careful / lucky to avoid some of the smellier ones! Can others beat this? On the plus side, there's also a £9.19 recovery from #57. Oh dear. I have just been assured by AC over the phone that they have never had a capital loss. Perhaps there was some misunderstanding by me or them. I was asking them why their Tax Statement page (on the Reports menu) did not have a figure for losses. Sounds like I need to phone them back. andrewholgate or other AC people can you please clarify? Because they have never officially closed any of the recoveries on the defaulted loans and formally written them off. However, HMRC allow lenders to declare their own losses based on whether a loan is irrecoverable without legal action which applies to all off the permanently suspended loans on AC. Therefore we can claim for losses even if AC hasnt officially declared a capital loss.
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SteveT
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Post by SteveT on Apr 5, 2017 16:19:31 GMT
... and all we need is for the Tax Statements provided by AC to quantify these "irrecoverable" (in HMRC terms) loans, along with recoveries from loans that became "irrecoverable" in 2015/16. This is something that hopefully andrewholgate is already chasing up. |
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Post by gusgorilla on Apr 5, 2017 16:57:51 GMT
Oh dear. I have just been assured by AC over the phone that they have never had a capital loss. Perhaps there was some misunderstanding by me or them. I was asking them why their Tax Statement page (on the Reports menu) did not have a figure for losses. Sounds like I need to phone them back. andrewholgate or other AC people can you please clarify? Because they have never officially closed any of the recoveries on the defaulted loans and formally written them off. However, HMRC allow lenders to declare their own losses based on whether a loan is irrecoverable without legal action which applies to all off the permanently suspended loans on AC. Therefore we can claim for losses even if AC hasnt officially declared a capital loss. it seems that you might be implying that AC are making our lives much harder by artificially, indefinitely omitting total defaults and total recoveries from their Tax Statement pages so they can tell people they have suffered no losses. If this is really what is happening it seems dishonest and I feel mistreated and not cared for. Thank goodness for platforms such as FS who are upfront about losses and recoveries. This is what FS tax statements look like now (numbers for illustration only): Total interest earned £1501.45 Total tax withheld £0.00 Capital losses from defaulted loans £1201.00 Capital recovered from defaulted loans £0.00 This looks bad at first glance because it seems profit has only been £300 (and this is what is taxable) but in reality the 1201.00 (or most of it) will appear as capital recovered in the following year. If all loans were sold at the end of this year the subsequent year might look like this: Total interest earned £0.00 Total tax withheld £0.00 Capital losses from defaulted loans £0.00 Capital recovered from defaulted loans £1201.00 The taxable profit this year would be £1201. SteveT are you suggesting that AC have low recovery rates that are partially concealed by them not declaring loans irrecoverable when it is clear they are, or am I going too far too fast here?
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