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Is HMRC going to tax lending fees?
There is a discussion on the Zopa Talk form and P2P Independent Forum concerning lending fees. A large minority of peer-to-peer companies, including Zopa and Funding Circle charge lenders a fee to use their services, but this fee is offset against interest. This effectively means that fees are not taxed.
Kevin Caley, Managing Director of ThinCats, stated on the P2P Independent Forum:
I attended a meeting between HMRC and the P2PFA today at which this was discussed (alongside the subject of using ISAs and the prospects for offsetting losses against interest income) but I think it will be some time before we see any changes to the rules. One interesting point to note is that if a platform charges you a fee for lending you cannot offset that cost against income for tax purposes. Zopa, Funding Circle, Ratesetter and several others charge lenders a fee and they are lobbying hard to get that changed but the response from HMRC was that they could bypass the problem by not charging lenders a fee!
Zopa confirmed their position that fees are currently exempt:
As it stands fees through Zopa are able to be offset against tax but bad debts cannot be offset against tax. Any future changes in lending fees or the tax treatment around lending will be communicated to customers. Both these the subjects are currently being discussed with HMRC
This puts lenders in a difficult position as they may already be locked into loans and cannot change their lending rate to offset any additional costs, however small. Lenders previously found themselves facing additional tax bills where it transpired that bad debt could not be offset against tax, where lenders had been lead to believe that it could.
Any "change" or "restatement" by HMRC is likely to force the peer-to-peer companies to move all costs to the borrower which wouldn't incur any additional taxation, but a growing number of P2P companies already do this. We would trust that HMRC would see sense, but if not then we would expect all peer-to-peer lenders to move to a fee-free model.