Peer-to-peer lending sites: MSE guide discussion

Nardge

masonic wrote: »

Cashback (a discount or partial refund applied to a purchase) is not taxable. Referral bonuses, however, would normally be taxable income. There has been discussion in the referrer's board about people splitting referral bonuses with people they refer and not leaving enough for themselves to satisfy their tax liability.

Thanks! I thought that was the case, but couldn't find where I'd read the same in the forums in order to verify...
I've already absorbed the respective sums into their ISAs, but I'll know I can withdraw the Cashback element next time!

Best Wishes

masonic

Nardge wrote: »

I've already absorbed the respective sums into their ISAs, but I'll know I can withdraw the Cashback element next time!

Whether it is 'absorbed' into an ISA doesn't really make any difference, whether you mean 'absorbed' as in transferred after being paid, or paid directly into the ISA. Cashback is not taxable in either case, and taxable referral payments will still be taxable if put into an ISA.

Nardge

masonic wrote: »

Whether it is 'absorbed' into an ISA doesn't really make any difference, whether you mean 'absorbed' as in transferred after being paid, or paid directly into the ISA. Cashback is not taxable in either case, and taxable referral payments will still be taxable if put into an ISA.

By 'absorbed' I meant transferring into corresponding p2p ISA from Holding Account or similar.

Cashback - I could have withdrawn this into my current account, and never had it taken into account in terms of PSA. Due to my erroneous understanding today, the sums went into ISAs for fear of being considered in my PSA and subsequent taxation.

Referral Fee - I should endeavour to absorb into ISAs, to avoid PSA consideration and tax if withdrawn?

This sets out my current understanding, though I'd be grateful to know if I'm mistaken?

Best Wishes

masonic

Nardge wrote: »

By 'absorbed' I meant transferring into corresponding p2p ISA from Holding Account or similar.

Cashback - I could have withdrawn this into my current account, and never had it taken into account in terms of PSA. Due to my erroneous understanding today, the sums went into ISAs for fear of being considered in my PSA and subsequent taxation.

Putting it in an ISA wouldn't have made any difference. The tax liability would have been incurred upon payment and that didn't happen within the ISA. Moving it into an ISA after receiving it would only prevent any future investment income being taxable. The same is true of bank interest and money paid to you by your employer, if you work - if only you could put £20k of that into an ISA to avoid paying tax on it!

Referral Fee - I should endeavour to absorb into ISAs, to avoid PSA consideration and tax if withdrawn?

As above, moving it into an ISA makes no difference. If you plan to invest the payment, then putting it in an ISA would allow you to earn future interest tax free. A referral fee would not be included in your PSA, it would be treated as an 'annual payment' or 'other income' in most cases - it is not interest.

This sets out my current understanding, though I'd be grateful to know if I'm mistaken?

Best Wishes

The above sets out my current understanding

GPK10

I am not quite sure how to quote a previous post from Nardge, but if you have transferred referral bonuses into two different ISA accounts in the same financial year, aren't you breaking the ISA rules by investing in two IFISA's?

masonic

GPK10 wrote: »

I am not quite sure how to quote a previous post from Nardge, but if you have transferred referral bonuses into two different ISA accounts in the same financial year, aren't you breaking the ISA rules by investing in two IFISA's?

Yes, that would constitute subscribing to two different IFISAs in the same tax year and be against the rules. I missed the plural form of ISA used a couple of times by Nardge. Hopefully the ISAs don't belong to the same individual.

Nardge

GPK10 wrote: »

I am not quite sure how to quote a previous post from Nardge, but if you have transferred referral bonuses into two different ISA accounts in the same financial year, aren't you breaking the ISA rules by investing in two IFISA's?

masonic wrote: »

Yes, that would constitute subscribing to two different IFISAs in the same tax year and be against the rules. I missed the plural form of ISA used a couple of times by Nardge. Hopefully the ISAs don't belong to the same individual.

Apologies for the length of this post, but I hope to be as precise and specific as can be in the hope that you have all the information with which to give me guidance…

On Page 101 of this thread (#2002) I queried:

“Greetings P2P peers, a quick query which I was hoping you could assist me with:
This year I opened and invested in a Ratesetter account for part of this tax year's ISA allowance.
Further ISA accounts were opened this same tax year, albeit with OLD previous tax year's allowances.
These were with Zopa, Funding Circle, Growth Street, Lending Crowd, Assetz Capital, and Kuflink.
As a result of referring friends, one or two bonuses for referrals have come in for the latter accounts.
I understand that to avoid income tax on these, I can bring them into their corresponding above ISAs.
However, as I've already opened Ratesetter this year with this tax year's money, can I do that?
Or would it be said by HMRC that I was funding multiple platforms with this tax year's allowance (albeit already opened and active platforms), something which I believe is not permitted?
Looking forward to your guidance,
With Kind Regards
P.S. I haven't had any problems with the above platforms as yet”

Joe_Bloggs replied (Page 101 of this thread (#2002)):

“I suspect that these bonuses are in the form of cash. This can be invested/saved in any current year ISA accounts as current tax year money. These referral bonuses probably do not attract tax. If in doubt declare them as such to HMRC and report back.
J_B.”

As a result of the above, and subsequent to Adrian C’s response (that to his knowledge neither Cashback nor Referral would incur taxation if placed in the ISAs (a post which since appears to have disappeared) I absorbed:

£500 cashback and £50 referral fee into Lending Crowd
£75 referral fee into Assetz Capital
£42.58 cashback and £100 referral fee into Kuflink

Future cashback for the above ISAs will filter through as the year closes…

What is the best way forward now that it's a done deed?
If it's not permitted, how to rectify it with minimum hassle?


Thanking you in advance,
Kind Regards

masonic

Nardge wrote: »

On Page 101 of this thread (#2002) I queried:

“Greetings P2P peers, a quick query which I was hoping you could assist me with:
This year I opened and invested in a Ratesetter account for part of this tax year's ISA allowance.
Further ISA accounts were opened this same tax year, albeit with OLD previous tax year's allowances.
These were with Zopa, Funding Circle, Growth Street, Lending Crowd, Assetz Capital, and Kuflink.
As a result of referring friends, one or two bonuses for referrals have come in for the latter accounts.
I understand that to avoid income tax on these, I can bring them into their corresponding above ISAs.
However, as I've already opened Ratesetter this year with this tax year's money, can I do that?
Or would it be said by HMRC that I was funding multiple platforms with this tax year's allowance (albeit already opened and active platforms), something which I believe is not permitted?
Looking forward to your guidance,
With Kind Regards
P.S. I haven't had any problems with the above platforms as yet”

Joe_Bloggs replied (Page 101 of this thread (#2002)):

“I suspect that these bonuses are in the form of cash. This can be invested/saved in any current year ISA accounts as current tax year money. These referral bonuses probably do not attract tax. If in doubt declare them as such to HMRC and report back.
J_B.”

So Joe_Bloggs has told you you can invest/save the referral bonuses in any current year ISA as current tax year money. That would be your Ratesetter IFISA, or a S&S/cash/Lifetime ISA you held for this tax year.

I disagree with him about the tax treatment btw. For example, I know the Kuflink referral bonus is taxable and and should be declared. This is highlighted by Kuflink in the referral offer T&Cs and has been discussed by those offering to refer people. Other referral bonuses are likely to be the same.

Referral bonuses can have slightly different tax treatment depending on whether you are the person being referred or the person doing the referring, I'm focusing on referral bonuses paid to those doing the referring as that's what you have done.

As a result of the above, and subsequent to Adrian C’s response (that to his knowledge neither Cashback nor Referral would incur taxation if placed in the ISAs (a post which since appears to have disappeared) I absorbed:

I disagree with this too, as I discussed a few posts earlier in this thread.

£500 cashback and £50 referral fee into Lending Crowd
£75 referral fee into Assetz Capital
£42.58 cashback and £100 referral fee into Kuflink

Future cashback for the above ISAs will filter through as the year closes…

What is the best way forward now that it's a done deed?
If it's not permitted, how to rectify it with minimum hassle?


Thanking you in advance,
Kind Regards

The Assetz Capital and Lending Crowd ISAs are flexible, so you could withdraw the money you paid in this tax year leaving them with no current year money. Whether this is actually worth doing or not is questionable because....

The Kuflink ISA is not flexible and has a £35 transfer out fee, so there is nothing you can do to rectify the situation. Presumably you subscribed to the Ratesetter ISA first during this tax year, so this is your valid IFISA for the 2018/19 tax year. HMRC will receive annual returns from all ISA providers shortly after the end of the tax year. These will highlight you've subscribed to an invalid combination of ISAs. The subscriptions to the second (and subsequent) IFISAs will be deemed invalid and will be removed (along with any interest) by the providers. Any interest will be taxable. HMRC will write to you about the action that is being taken.

Nardge

Many thanks for your continued assistance Masonic...

So, to summarise/conclude:

Cashback (a discount or partial refund applied to a purchase) is taxed at source.
It is not taxable post payment to the individual, whether within or outwith of an ISA.

Referral bonuses however, are taxable income, regardless of ISA status.
They are treated as an 'annual payment' or 'other income'.
Referrer Referrals – Taxed under the above titles.
Referee Referrals – We remain unsure, but conceptually presumably treated like cashback?

Due to my misunderstanding of written words, I have inadvertently subscribed into several different IF ISAs in the same tax year

As I’d rather iron-out my mistake now and avoid future hassle with HMRC, I should fill-out ‘Transfer Out Forms’ for the sums above using the Ratesetter ISA Forms, thereby extracting the same from Lending Crowd, Assetz Capital, and Kuflink ISAs, albeit with a prospective £35 fine from Kuflink. I presume this is the best way to resolve things without HMRC involvement...

I look forward to hearing from you,
With Kind Regards

P.S. Id’ offer you a medal and a bottle of champagne for all your help J

masonic

Nardge wrote: »

Many thanks for your continued assistance Masonic...

So, to summarise/conclude:

Cashback (a discount or partial refund applied to a purchase) is taxed at source.
It is not taxable post payment to the individual, whether within or outwith of an ISA.

No, it is not taxed at source. It is not taxable because it is a discount on a purchase.

Referral bonuses however, are taxable income, regardless of ISA status.
They are treated as an 'annual payment' or 'other income'.
Referrer Referrals – Taxed under the above titles.
Referee Referrals – We remain unsure, but conceptually presumably treated like cashback?

For referee referrals, it will depend on the offer. For example, Ratesetter requires individuals to invest a sum of money to qualify and the referral payment is treated as cashback, whereas Ratesetter referral payments earned by the referrer is taxable. The same is true of Kuflink and Kuflink has the same requirement to purchase investments placed on the referee but not the referrer.

I'm not aware of any examples where referee referral payments are taxable, or referrer referral payments are not taxable, but examples could exist. It will depend on the T&Cs of the offer.

Due to my misunderstanding of written words, I have inadvertently subscribed into several different IF ISAs in the same tax year

As I’d rather iron-out my mistake now and avoid future hassle with HMRC, I should fill-out ‘Transfer Out Forms’ for the sums above using the Ratesetter ISA Forms, thereby extracting the same from Lending Crowd, Assetz Capital, and Kuflink ISAs, albeit with a prospective £35 fine from Kuflink. I presume this is the best way to resolve things without HMRC involvement...

I look forward to hearing from you,
With Kind Regards

P.S. Id’ offer you a medal and a bottle of champagne for all your helpJ

For the flexible ISAs (AC and LC), you just need to withdraw all of the money you have paid in during this tax year (such that they will show an available ISA allowance of £20,000) - this should lead to both providers reporting that no subscriptions were made in 2018/19.

It is only the non-flexible Kuflink ISA that would require a formal transfer to RS. But I wouldn't do it if I were you. The financial consequences of HMRC dealing with it will be minimal. Certainly a lot less than £35. If you leave the money in cash in your Kuflink ISA then that will keep things as simple as possible for when the money comes to be removed by Kuflink on the instruction of HMRC.