PEER-TO-PEER lenders are among a group of companies that are set to present HMRC with a list of Innovative Finance ISA (IFISA) concerns, Peer2Peer Finance News has learned.
P2P business lender ThinCats, IFISA technology provider Goji and financial services trade body TISA are set to address a number of concerns with the taxman, including how to deal with ISA repairs, deaths, defaults, and the definition of P2P itself.
It is hoped that by raising these issues now, UK-based P2P platforms can avoid costly fines and retroactive taxation after the current tax year.
This year has seen a plethora of IFISA approvals from HMRC, leading to record-breaking investments on IFISA-ready platforms. However, a lack of clarity around IFISA administration could place some of these investments in jeopardy.
One of the key concerns is how P2P platforms would be expected to handle IFISA repairs. These happen when an investor has placed too much money into their ISA account in a tax year, and has to remove a portion. While this is easily done when dealing with a cash ISA or stocks and shares ISA, it could become complex for IFISA users who have invested across a range of part loans.
“Imagine that someone has inadvertently opened too many ISAs in a year and the Inland Revenue writes to one of the providers and says to advise them of this,” said Stewart Cazier, head of retail at ThinCats.
“At the moment, the rules have been made for stocks and shares and cash ISAs. There are a few ways to remove that money. You can either track the most recent investments and divest it. But it might have already been invested across a lot of different loans. So how do you deal with that?
“If you’ve got loan parts it would probably be more sensible to provide a way to remove a few whole parts rather than trying to take a sliver out of each loan part.”
Cazier added that the P2P platform would ultimately pick up the bill for this sort of work.
“The IFISA is quite different in that its illiquid,” added Jake Wombwell-Povey chief executive of P2P administrator Goji. “You can’t just get a valuation based on market price.
“There can be quite a big monetary implication if platforms get things wrong. We could be dealing with big operational issues.”
Another potential problem is the way in which HMRC defines P2P. The popularity of secondary markets among retail-focused P2P lenders means that IFISA investors could inadvertently acquire P2P loans which are not ISA-eligible.
“If a non-relevant party acquires a loan, it’s not really a P2P loan anymore,” explained Wombwell-Povey. “If that is then bought by a retail investor who puts that into their ISA, in theory the investor is not able to get the tax advantages on that. Plus, the P2P platform will have technically allowed a non-IFISA investment into the wrapper.
“Some of the larger platforms have huge volumes on their secondary market. The idea of these loans making their way to the secondary market is not out of the question.”
However, Cazier added that these issues are not “day one critical” for the IFISA. “They are more likely to take place a few months after the end of the tax year,” he said.
“We’re very focused on making sure that we can do everything that’s required during the entire life cycle of the ISA and making sure we don’t just see a problem when it occurs,” added Cazier.
The firms also plan to ask HMRC for further clarity on how platforms should deal with the death of an investor, and with defaults in their loans.
According to Wombwell-Povey, the firms have already had a few conversations with HMRC, and plan to formally bring the issues to the attention of the tax office “within the next month”.
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