Are P2P bad debts deducted when calculating tax?

aroominyork

I applied to HMRC for a tax refund for 2019-20 and detailed savings/investment income of £1152. This was made up of £1440 along with a negative of £288 from Funding Circle comprising £37 interest less £325 bad debts. Today I received a P800 showing untaxed interest of £1440, ie the bad debts were only deducted to the amount of the £37 interest. Is that correct? I thought P2P bad debts were fully taken into account when calculating tax.

Thrugelmir

Capital losses cannot be offset against income. 

Jeremy535897

No. See https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim12110 et seq.

aroominyork

Jeremy535897 said:

No. See https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim12110 et seq.

"Peer to peer (P2P) tax relief for irrecoverable P2P loans can only be set against interest received by the lender on other P2P loans. It cannot be used against any other form of income.". Thanks.

aroominyork

More confusion on the P800 because it looks like HMRC are over-repaying me. I am showing their format below with simplified numbers (but I can post mine if it helps). My aim was to pay enough into my SIPP to reclaim all the 40% tax.

If my income is £60,000 and I have a personal allowance of £12,500, I pay 20% tax on £37,500 and 40% on £10,000, a total of £11,500. Since I pay £4,000 in higher rate tax I make a net SIPP contribution of £8000 which is £10,000 gross. I therefore expect to receive a refund of £2,000, the element of the 40% tax which is not claimed from HMRC by my SIPP provider. But this is how the P800 calculates it.

Taxable income £60,000

Deduction (gross SIPP contribution) £10,000

Income less total deductions £50,000

Personal allowance £12,500

Total taxable income £37,500

Basic rate tax at 20% on £37,500 = £7500

Tax you’ve already paid £11,500

HMRC owes you £4000.

So I’m getting a refund of twice the amount I expected. Where am I going wrong please?

Dazed_and_C0nfused

What is the £10,000 deduction actually called?

I don't recollect HMRC using SIPP contribution as a description before and a relief at source pension contribution doesn't (shouldn't) reduce the taxable income that gets taxed.

aroominyork

On the P800 it is surprisingly called Retirement Annuity Payment.

In the previous year they did it a different way, increasing the amount on which I paid basic rate tax.

Dazed_and_C0nfused

They have made a mistake.

Retirement annuity payments are old pension schemes where no tax relief is allowed at source hence they work a bit like the Personal Allowance when if comes to relief.

The correct method is as you have described, to increase the basic rate band.

aroominyork

Dazed_and_C0nfused said:

They have made a mistake.

Retirement annuity payments are old pension schemes where no tax relief is allowed at source hence they work a bit like the Personal Allowance when if comes to relief.

The correct method is as you have described, to increase the basic rate band.

Thanks. So naturslly I should phone and tell them there is a mistake. But if I don't, is it likely/certain they will pick it up in future, and do I risk anything except having to repay £2000 at a later date?

MDMD

aroominyork said:

Dazed_and_C0nfused said:

They have made a mistake.

Retirement annuity payments are old pension schemes where no tax relief is allowed at source hence they work a bit like the Personal Allowance when if comes to relief.

The correct method is as you have described, to increase the basic rate band.

Thanks. So naturslly I should phone and tell them there is a mistake. But if I don't, is it likely/certain they will pick it up in future, and do I risk anything except having to repay £2000 at a later date?

Given you are aware of it it’s technically tax evasion 

https://www.legislation.gov.uk/ukpga/1970/9/section/106A

Jeremy535897

I thought it was simply an offence under the Theft Act 1968 when you keep a repayment you are not entitled to:
https://www.legislation.gov.uk/ukpga/1968/60/enacted?view=plain