blender
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Post by blender on Aug 9, 2018 17:04:53 GMT
Will need to do my first declaration for P2P income this year After looking at the funding circle tax statement and reading this thread I'm confused as to which amount I use from the FS statement? "Total interest paid by borrower" or "Income payments made to you" Based on experience gained since this thread was active I wonder if someone could clarify for me? Thanks Assuming you're still talking about Funding Circle (as you said "I'm confused as to which amount I use from the FS statement?"), my accountant uses -Total interest paid by borrower (as 'Income payments made to you' is after FC Fees, which you can't claim for in his view), PLUS -Total eligible bad debt in period (it's a negative value), PLUS -Recoveries on principal defaulted in prior periods (since 6.4.15)
You need to have a chat with your accountant. It is the net that is taxable according to FC information. You are only taxed on the interest paid to you, which is the net figure on the FC statement. The important point is that it is the borrower who pays the 1%, not you. If you paid it, then you would have received all of it and paid 1% back, in which case you declare the gross. But FC never says the gross is paid to you. Quite the opposite, in borrower FAQs: "We also charge a 1% annual servicing fee on the amount outstanding on any loan. This is included in the interest rate payable by the borrower and taken directly from the loan repayments made by borrowers. The servicing fee covers the costs of running the website and maintaining the loans". (my bold) FC made a change a few years ago to remove the charge from the investors and transfer it to the borrowers - for this purpose, we understood.
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ozaz
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Tax
Aug 9, 2018 17:20:03 GMT
cb25 likes this
Post by ozaz on Aug 9, 2018 17:20:03 GMT
Actually, I did read that prior to posting here. I didn't find it sufficient to clarify my understanding. It states: "On any interest earned over our tax-free limits, we're taxed on any lending fees that the peer-to-peer lending platforms charge directly to us lenders.
However, most platforms don't charge direct lending fees. They might charge variants like “loan servicing fees”, but these are tax deductible."My interpretation of this is we should be taxed on "Income payments made to you" rather than ""Total interest paid by borrower" as we don't see the "Funding Circle servicing fee" as a direct charge to us as Lenders. But this is different to how your accountant is treating it and I can't find any HMRC documentation to confirm the 4thway article.
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cb25
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Tax
Aug 9, 2018 17:42:48 GMT
Post by cb25 on Aug 9, 2018 17:42:48 GMT
One could read FC fees either way, as a Lender fee or a Borrower Fee
i) if it's a pure Borrower fee, why is it mentioned at all on FC's Tax Statement to Lenders ?
ii) if FC don't charge Lenders any fees, why do they post things like this on webpages for Lenders "The rates shown are the annual projected returns, after fees and bad debts but before tax, that a diversified investor could earn with either lending option" www.fundingcircle.com/uk/investors/"We also charge a 1% annual servicing fee on the amount outstanding on any loan. This is included in the interest rate payable by the borrower and taken directly from the loan repayments made by borrowers. The servicing fee covers the costs of running the website and maintaining the loans and is already accounted for in your projected return." FAQs for Investors, "What fees does Funding Circle charge?"
I agree the latter text reads more like a Borrower fee but it's under "FAQs for Investors" (again, why mention it to Investors/Lenders if it's a Borrower only fee)
"Servicing fees
HMRC has recently confirmed that from 6th April investors will have to pay tax on the gross interest rate before deduction of fees. As a result we have made changes to the terms and conditions for investors and borrowers to clarify the way we cover the cost of loan servicing.
From April 6th we will no longer charge an annual investor fee. Instead we will take this same amount directly from the borrower repayments as a servicing fee."
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blender
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Post by blender on Aug 9, 2018 19:52:01 GMT
The answer to your questions, cb25 is in the history of the FC charge, as explained by the quote at the end of your post. Before that FC did pay the gross to the lender and then the lender paid the fees. The key point is that tax is paid on the interest paid to you, and the wording of the tax statement changed to reflect the change in payment of the 1% fee. The problem for FC is that they could not change the basic platform engine, so that your statements still show the 1% fee being subtracted, and that has to be explained (you never get it), together with the incorrect interest rate shown elsewhere - we get paid 1% less than the borrower pays. I will not bore you with the SM. If they had started with the borrower paying the 1%, then they would have set things up differently and there would not be this confusion. So if I were you I would declare the net (as your gross), though I cannot give advice except to say that I have done that for five years.
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ozaz
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Post by ozaz on Aug 10, 2018 8:54:11 GMT
I emailed Funding Circle and received the following response (bold emphasis added by me):
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