I’ve been preparing my UK personal self assessment returns to include P2P and Property Crowdfunding income. This posts looks at what I’ve found to be technically necessary and follows up with my interaction with the platforms I invest in: exporting tax reports and specific tax questions. I’ve already written about how the UK government calculates tax on P2P income here, but have pasted in the relevant parts:
P2P Lending & UK Tax
I’m not a tax advisor, this is what I’ve found from my personal research. Please confirm with your own research regarding tax. HMRC quotes are taken as of 27th December 2016 and may have changed if you read this much later.
The first two things I want to understand are:
- What paperwork does HMRC require for annual P2P related income
- How does HMRC tax P2P income
Annual Tax Paperwork Requirements
Most UK taxpayers receive a personal allowance of £1,000 of interest income before they have to start paying tax (£500 for higher rate tax payers, £0 for those earning above £150k). Beyond this, tax is payed at the marginal rate of income tax.
You must notify HMRC of P2P income either:
- A) Through your annual tax return, if you need to produce them (I have to do this as I am self employed).
- B) Contacting your local tax office and providing the annual tax statements from P2P lending platforms, who should adjust your PAYE tax code on your behalf. Zopa have made a template letter that you can download and send to to your local tax office (download link, no Zopa account needed).
How Does HMRC Tax P2P Income?
The UK Government have published a short guidance document on P2P investment here. Produced by HMRC, it is a useful introduction.
An important point in the HMRC document is regarding claiming tax relief on unpaid loans. One of the stipulations on claiming tax relief given in the guidance document is that loans are “through peer to peer lending platforms that are authorised by the FCA”. As many of the EU platforms are not authorised by the UK based FCA, does that mean that bad debt cannot be claimed offset against interest payments?
In a seperate, more detailed 19 page document on income tax relief (pdf available here) HMRC goes on to clarify:
This condition may also be met if the loan is made through an operator who is based elsewhere in the European Economic Area and has been granted equivalent permissions under the law of that jurisdiction. However this will only be the case where the operator has been granted a permission to undertake the activity, if the law instead states that permission is not needed to operate as a peer to peer lending platform in that jurisdiction then the condition will not be met.
A few other interesting points from the longer 19 page document:
At what stage is a loan deemed ‘irrecoverable’ so it can be offset against tax?
Whether a loan has become irrecoverable should be judged on a case by case basis, however as the loan will be managed by a platform, the platform would usually be in a position to determine when a loan has become irrecoverable. The platform would then inform the lender that the loan had become irrecoverable. If the platform does not undertake this action, then the lender may still determine that the loan has become irrecoverable. However it will be the responsibility of the lender to show that there is no reasonable prospect of the recovery of the loan and it is NOT simply a case of late payment.
In pages 15 and 16 it says that you can spread irrecoverable losses between platforms and carry forward for up to 4 years. If principle is later recovered you count that as a new interest income. There is some complication around selling on bad loans. It is not clear to me whether you are able to count secondary market sales of discounted/irrecoverable loans against any form of tax relief (HMRC talks about it on page 10). Even the large UK P2P platforms seem unclear on this. Funding Circle have a useful overview of UK tax (here) but when it comes to secondary market sales they just say “we recommend that you speak to your accountants or tax advisors for detailed advice on any such transfers.”
My Experience With the UK Self Assessment
I have to provide a self assessment as I am self employed. HMRC say if you do not have to do your own self assessment, you can just send the P2P reports to your local tax office and they will calculate it for you. However, I found that at least 2 of my platforms overestimated the taxable income in their tax exports.
Going into this, I thought the logic around tax would be:
- Cashback, for being referred as a new customer, was non-taxable [Not always true]
- Cashback, for early funding loans, was non-taxable [False]
- Cashback, for referring others, was taxable [true]
I’ve collected some notes on my understanding of my platforms below, but a visual summary is this:
Platform Specific Notes
(you can probably ignore most of this as it is mainly waffle)
https://members.ratesetter.com/your_lending/tax_statement.aspx – this told me the interest from my RateSetter account in the tax year. However, it didn’t include income from referring friends which is taxable. To get this income I had to go to my account history (https://members.ratesetter.com/your_lending/account_history.aspx) and export all the transactions by date range, then manually calculate it in excel.
I went to ‘Reports’ -> ‘Tax Statement’. In typical Assetz Capital fashion it gave the interest over the tax year to 12 decimal places. There was an option to print the report and export the csv. If you click print you can then select save to pdf in the next step to keep a digital copy. I saved both the pdf report and csv just incase.
I went to ‘Statements’ -> ‘Tax Statement’ -> ‘Download Tax Statement’. This statement included both interest and cashback income. Unfortunately not all cashback income is taxed the same but Landbay group it all together in this statement. They don’t allow you to export a csv of all transactions over the year, so you have to manually look at the month by month views on the website. You’d probably need to screenshot every single one as evidence too. When I spoke to live chat they told me “Our tax statements are currently slightly incorrect and doesn’t tell you this. We are making changes to this.” I was under the impression that the cashback from the waiting queue was not taxable (as on other platforms) but live support confirmed that in their opinion it is taxable – they see it as income.
I’d closed my account with BondMason and could no longer access the dashboard, so had to email for my tax report. Interest paid during the period was £7.62, even though in practice the net withdrawn to my bank account all told was £4.97… so in practice my fees ended up at 35%. This was probably because I invested so little – this is not really relevant for larger investment amounts.
I found a nice guide by Lending Works on tax (https://www.lendingworks.co.uk/help-centre/tax) but found it very difficult to find the tax statement for my account. You have to go to your dashboard summary, then underneath where it has the projected interest rates on the left hand side click the ‘More +’ and scroll down. It breaks down interest and promotional credit for inviting your friends (which is of course taxable). However, contradictory to Lending Works own advice (link), the cashback bonus I received as a new member was also included in this.
I clicked on ‘statements’ -> ‘2016/2017 Income Statement’ -> ‘Download Annual Income Statement’. The annual income statement included the referral bonus I received as a new customer as a taxable income. I was quite surprised by this as everyone else say this is not taxable, though Zopa support confirmed to me:
This may vary from other peer-to-peer lending companies, however, I can confirm that the £50 is not considered as a cashback but as a bonus that contributes to your earnings which must be declared to HMRC.
Property Partner had a specific ‘tax statements’ option on the menu. It broke out Dividends, Capital Gains (loses in my case) overall and by individual property. They did not include the cashback incentives for ‘immediate income’ or the 5% cashback incentive they offered for existing investors a while back. I have yet to get around to contacting their livechat for the answer.
This breaks down dividend income and capital gains, both at total level and then on later pages by individual properties. It doesn’t include the 3% cashback you get while a property is funding, supposedly Property Moose count this as tax free. When I tried to export a record all transactions, it did not allow me to change the period: specifically selecting April-16 to April-17 would only export records from April-17 onwards. I contacted Property Moose’s customer support but several weeks later am yet to receive the answer.
Lendy (formally Saving Stream)
After logging into the Lendy website I clicked on ‘my account’, ‘tax statements’, then updated the tax period to last year. It clearly broke down the different types of income. There was no mention of bad/irrecoverable debt (that potentially people may want to use to offset against income).
To get to the tax statement from your Unbolted account, click ‘Loan Portfolio’, then ‘for annual tax statements, click here’. It has a simple little table with a breakdown by year and by month. There’s no option to download a pdf, but you can either copy and paste into excel or print via your browser to a pdf instead.
In Ablrate I clicked on ‘Dashboard’ -> ‘My account history’ ->’Download Tax History’ and put in the period. It popped up with a nice looking box with all the info, and an option to download the pdf. This shows a total for interest and also includes a section on bad/irrecoverable debt. It does not include information on capital gains from trading on the secondary market, nor ‘instant returns’ for pre-funding an investment. Unlike platforms Ablrate consider the pre-funding interest a capital gain – read more.
I went to ‘Account’ -> ‘Tax Statement’ then downloaded the pdf.
I clicked ‘Dashboard’ -> ‘Tax Statement’. There was the option to download the tax statement pdf or to view a regular statement. The tax statement included lines for bad debt deductions and for capital gains for selling loan parts at a profit. It didn’t include cashback for being referred or for referring others, to get that you have to manually calculate from the transactional report. I’m not sure how it includes the various ‘0.5%’ cashback incentives for funding projects near to you or being an early investor. For me it was probably about 10p in total so I didn’t bother to try to reconcile the numbers myself. I have yet to get around to emailing them to check how they view the tax status of the bonus you receive as a new customer or the various 0.5% cashback offers.
‘My Account’ -> ‘Tax Statement’. I input the dates for the UK tax year and it showed a breakdown with the option to download a pdf.
I clicked ‘tax statements’ and the last UK tax year. It had a breakdown of interest earned and capital losses and recoveries. It did not include the referral bonus when I first joined. It didn’t include any info on capital gains/ loses for buying and selling on the secondary market.
I went to ‘view tax statement’ on the main summary page and downloaded the pdf. It broke down income, Funding Circle servicing fees and bad debts. Should the gross interest, or the interest after the 1% servicing fee be put down on the income tax self assessment? Funding Circle’s website was not clear. This is a post on the subject from the P2PIndependent Forum (start at the last post on the first page).
I couldn’t find the tax statement anywhere online. It turns out they had emailed it to everyone instead. I received my tax statement email on the 3rd of May with a simple number for the interest received.