When will annual income statements be updated?

HMRC requires that combined figure, across all P2P platforms and all other gross interest payers, all combined into just one number:

"6 April 15 to 5 April 16

The Lender can also claim relief on P2P loans that became irrecoverable on or after 6 April 2015 against other interest received in the same tax year from other P2P loans that were made through the same platform as the now irrecoverable loan.

This relief should be claimed in a tax return.

In order to claim relief in a tax return the lender should deduct their available relief from the P2P interest that they have received in that year before entering the figure in their tax return.

Example 2

Niall makes a series of interest bearing 5 year loans through Platform ‘Zapo’ in tax year 2014. In November 2015 one of the loans becomes irrecoverable. Niall can set off the irrecoverable amount of the loan against any interest received from other loans made through ‘Zapo’ in his tax return in the tax year 2015."

It then goes on to say that it can be deducted from other platforms' interest if the first one doesn't have enough interest to use it all:

"Geoffrey in tax year 2013 made 5 loans through platform ‘Zapo’ and 6 loans through platform ‘SateRetter’. When one loan made through Zapo became irrecoverable in tax year 2016, the irrecoverable amount was set against interest received from Zapo loans in the year. However, the irrecoverable amount exceeded the amount of interest received from the other Zapo loans in 2016. Geoffrey then set off the remaining irrecoverable amount against interest received from SateRetter loans in tax year 2016."

You're wrong about that. You can reduce the interest from all other platforms combined for the next four years if required:

"The Lender can claim relief on peer to peer (P2P) loans that became irrecoverable on or after 6 April 2015, against interest received from loans made through P2P platforms in the 4 years following the year in which the debt became irrecoverable.

This relief can only be claimed if the loss resulting from the irrecoverable loan cannot be used wholly against interest received through P2P platforms in the same year as the loan is treated as becoming irrecoverable.

If carried forward, relief for the outstanding amount of the irrecoverable loan must be used against P2P interest received in the earliest year first, up to a maximum of 4 years

In order to claim relief in a tax return the lender should deduct their available relief from the P2P interest that they have received in the relevant tax year before entering the figure in their tax return."

At various places claiming through a tax return is mentioned but that just means however you tell HMRC, by actual return or letter or phone call if you're just in PAY and not SA.

When capital is recovered from loans where you've claimed this, you add that recovered capital to the interest amount in subsequent years so you pay back the relief you got on that money:

"Bridget makes 15 identical £10 loans. 2 of these loans become irrecoverable in tax year 17 and she  receives relief of £20 to set against the other P2P interest that she receives in the tax year 17.  In tax year 18, one of the irrecoverable loans is partly recovered to an amount of £5. In the tax year  18 this £5 recovery is taxable as P2P interest received by Bridget."

There is one exception to the one gross number case, if you have foreign income to report. In that case you have to give the gross amount of foreign interest and if it's more than £2k you have to give it per source country on the foreign pages. So those two or more numbers may need to be adjusted individually.

For convenience I've put a slightly modified version of this post in a new general section topic How to claim P2P bad debt relief that can be linked to easily,

Speaking of bonuses, are bonuses taxable?

It's also worth noticing that irrecoverable ultimately makes no difference to the tax take, since recovery of capital is treated as interest, getting back any tax that HMRC may have initially missed. There's a time cost but not an ultimate loss to HMRC.

Of course getting it "right" for some reasonable approximation of right is needed, but it's not likely at an individual lender level to have that great an effect on HMRC's tax take.

What does have a net tax effect is things like a platform reporting recoveries from defaults from loans in tax years before 2015/16 as recoveries, inviting people to treat the capital recovery as interest when it's actually just capital recovery and not taxable at all, unless it is the interest from such a loan. It's an area where a platform needs to be careful to distinguish between capital and interest recovery for years before 2015/16 and from then to get the years right so people do know that certain capital recovery is now something that has to be added to interest.

I doubt that Zopa has anything resembling a correct treatment of this for this tax year but I'd love to be pleasantly surprised. And of course that applies to all UK platforms, not just Zopa.

I tend to agree, but have also seen other lenders arguing that some bonuses are not taxable, it would be nice if Zopa jumped in and said definitely one way or another.

Ratesetter just gives a figure that should be declared to HMRC. Is that so difficult?

I think yet again that the latest zopa web design is not really geared to old non safe guarded loans that much - can;t really blame them as the changes across the piece have been quite considerable and also zopa has been trying to change to the new webkit stuff that merges mobile and tablets and PC into one, sadly not that easy to work with on PC when half 2/3 of the screen is wasted.

In previous statements zopa has defined HMRC declaration as follows

    Interest from your borrowers( 1)                    £517.82
    Zopa bonuses                                          £0.00
    Tell-a-friend rewards                                 £0.00
    Lending fees4                                       -£17.82
    Rapid return fees                                     £0.00
    GROSS EARNINGS TO DECLARE TO HMRC                   £500.00

    ===========================================================
    Capital written off this year due to bad debt2      -£10.84
    Capital recovered from previous years' bad debt3      £8.92

I've changed the numbers to make them easier calcs but as can be seen in previous years there has been no recovery of the last two items from a tax perspective. It may be that from a new perspective this has changed but at the moment I don't understand that and my understanding is that this is capital written off. The last item has been renamed to capital returned from defaults but to be honest most of my defaults are not paying interest just capital and damned slowly at that so thats to me is my money and not interest or taxable in my eyes.

James does have some very interesting stuff on the recoverables though and I guess if I were to offset them then it would become more difficult to separate each year. 

So from my perspective if I simply deal with things for HMRC as just the interest + bonus I received then I will be as near as I can and not offsetting losses. Clearly if my book was a lot bigger and my capital losses more significant then it might be more difficult to not look at involving the recovery items.

For interest sake taking the following figures (Note I am early adopter with .5% adopter bonus) and using the simple calculation of

        Total Interest and bonuses received / Zopa total @ 5th April 2015

then

        Interest for year without losses was 5.4683% 

        Interest for year with bad debt was  5.3226%

Which I think is a default rate of 0.1457% unless I am working this out wrong.

Just a thought! Please let me know if my calcs are off.