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Autumn Statement and peer-to-peer lending
The government has announced some significant changes to peer-to-peer lending in the Autumn Statement. This was contained within the small print of the Autumn Statement document:
This Autumn Statement announces support for Peer to Peer (P2P) and crowdfunding platforms through a package of measures to remove barriers to their growth from regulation and tax rules. These include a new bad debt relief for lending through P2P platforms; a consultation on whether to extend ISA eligibility to lenders using crowdfunded, debt-based securities and an intention to review financial regulation which currently stands in the way of institutional lending through P2P platforms.
The changes have been broken down into three areas. The two that directly affect lenders will be the bad debt relief, which mean lenders will pay tax after bad debt not before, and the withholding of tax on income.
2.183 Removing regulatory barriers for peer-to-peer (P2P) lending – The government announces its intention to review financial regulation which currently stands in the way of institutional lending through P2P platforms.
2.184 Bad debt relief on investments made through the peer-to-peer lending industry – The government will introduce a new relief to allow individuals lending through P2P platforms to offset any losses from loans which go bad against other P2P income. It will be effective from April 2016 and, through Self Assessment, will allow individuals to make a claim for relief on losses incurred from April 2015. (19)
2.185 Withholding regime applied across peer-to-peer lending platforms – The government will consult on the introduction of a withholding regime for Income Tax to apply across all P2P lending platforms from April 2017. This will help many individuals to resolve their tax liability without them having to file for Self Assessment. (53)
There have already been some reactions to the announcement within the peer-to-peer sector. Ian Gurney, founder of P2P money stated:
This is good news for the peer-to-peer sector as it allows lenders to complete fairly with other financial institutions who pay tax after bad debt. It also means that tax-payers are spared having to fill in a tax return solely for declaring their untaxed income from peer-to-peer lending.
James Meekings, co-founder of Funding Circle, also responded:
“This change in the tax system will make lending to small businesses via our marketplace much fairer for individual investors, putting them in an equal position to larger lenders such as banks. It’s something we have campaigned for since we launched four years ago, so we’re delighted with today’s news. More than 35,000 people currently lend through Funding Circle and the average investor could earn up to 25% more overnight per year as a result of this change. This could potentially be significantly higher depending on an individual's investment strategy. It will have a hugely positive impact on the peer-to-peer lending industry and is a win-win-win for investors, borrowers and the economy at large."
Giles Andews, CEO and co-founder of Zopa, stated:
“It’s great to see the Chancellor tackling an out-dated tax law that disadvantages alternative financial models like peer-to-peer lending (P2P). Overturning this tax law means thousands of consumers will keep more of their returns from lending as they will now be able to offset any losses against their P2P interest when calculating tax due on that interest. Zopa and the P2PFA have campaigned hard on this issue and we very much welcome the change. This is a progressive reform from the Treasury that reflects the growing importance of the UK’s alternative financial services sector.”