INNOVATIVE Finance ISA (IFISA) providers have called for a simplified HMRC submissions process that is more tailored to the tax wrapper, after the taxman revealed that last year’s data was incomplete.
Peer-to-peer lending platforms and other providers of debt-based securities who offer an IFISA must submit their ISA returns by 6 June following the end of each tax year in April.
But critics argue that the submissions process is not fit for purpose as it is designed for other types of ISAs.
“The submissions forms are really customised for stocks and shares and cash ISAs, while IFISAs are gradually being incorporated,” said Tony Alner, EasyMoney’s chief operating officer, who has previously designed several IFISAs for other providers.
“Some of the information isn’t applicable, most IFISA providers will not be making claims for tax relief and won’t be paying interest on cash on deposit.”
Andrew Adcock, chief marketing officer of P2P bonds platform Crowd for Angels, also called for a more tailored submission process.
“The process itself is fairly straight-forward and has relevant guidelines,” he said.
“However, because the form contains reporting on all types of ISAs there are many fields that are not necessary.
“I would like to see the process digitised in-line with the advances at Companies House, this I hope would lead to greater efficiency in reporting.”
HMRC’s figures for the 2017/2018 tax year showed that £290m was put into 31,000 IFISA accounts, but a footnote revealed that the data is incomplete due to not all platforms providing full information.
The submission process includes a compliance report showing everyone who opened an ISA account and a separate statistics report which gives the total market value of ISA investments, the total value of deposited cash and the number of customers.
EasyMoney’s Alner said that it can be harder for IFISA providers to determine the market value of their portfolio.
“For stocks and shares ISAs, the market value details the return made on invested cash and keeps cash on deposit separate,” he added.
“For IFISAs, HMRC declared that the market value should consist of loans that aren’t redeemed yet and cash interest that is owed or accrued but not paid as well as separate cash on deposit.
“This information is a lot harder to break down and doesn’t give an accurate market value at the year end. A bespoke box requesting loan values, defaults or unredeemed parts would make more sense as you wouldn’t have to drill down into each individual client.
“Also, the market value doesn’t allow for defaulted loans or late payments of interest. EasyMoney hasn’t defaulted at all but other firms will have defaulted loans or loans that are re-financing.”
He said providers offering flexible IFISAs may also face issues as a platform receiving partial funds moved from a competitor is relying on them to provide an accurate value.
IFISA provider Kuflink has suggested more automation would be helpful rather than having to fill in the forms manually, while another, HNW Lending, has queried the relevance of having to provide the date of the first payment into each IFISA.
HMRC’s ISA data is released each August and revised the following April for anyone who submits information late or makes corrections.
The taxman faced criticism in the first year of the IFISA – the 2016/2017 tax year – as providers questioned how it calculated just £17m of tax-free savings across 2,000 accounts. That figure was later revised to £36m across 5,000 accounts.
“For newly-authorised ISA managers who have never completed the return before, it’s expected there will be challenges for them to overcome,” said Carol Knight, chief operating officer at trade body the Tax Incentivised Savings Association.
“Regardless of this, the summer stats showed a significant increase in the number of accounts subscribed to and the amounts in them.
“So, if there were a significant number of IFISA managers who submitted their 2017/18 annual return late, then the numbers would be distorted somewhat and the increase would be even more significant.
“Of course, we will have to wait and see what the April 2019 figures show, as these will include any late submissions and will provide a clearer view of the current situation.”
Read more: P2P firms alert HMRC to IFISA issues
HMRC said it was working with providers on fulfilling their obligations.
“IFISAs are a relatively new offering so some managers of these accounts may not be used to the ISA reporting requirements,” a spokesperson said.
“We are working with these providers to make sure they know what their reporting obligations are.”
This story featured in the October issue of Peer2Peer Finance News, now available to read online.