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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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there, I am a recent investor in peer to peer lending.

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Hi there,
I am a recent investor in peer to peer lending. However, I'm unclear of the tax consequences of lending to a large number of companies. Some HMRC guidance is here:
This implies that if there's some degree of organisation, and/ or I lend to a large number of businesses, I may be deemed to be carrying on a moneylending trade. I would like to lend a large sum to hundreds of companies to diversify my risks. Can you please advise (1) whether this may be something I need to consider, and (2) what the tax consequences of being deemed to be carrying out a moneylending trade are.
Many thanks


Can you tell me if you are lending through an intermediary or dealing directly with the companies you wish to lend to. Are you involved in any other business or employment? What work do you have to do right now in coneection with your peer to peer lending? Is it all handled for you by the intermediary?

Customer: replied 3 years ago.

Hi. I am lending through funding circle (so an intermediary, although technically I still choose which companies on the site to lend to). I am currently in full time employment, although I plan to 'retire' in the not to distant future and live off income from a variety of investments (including these). My involvement is to choose companies to lend to, select amounts to lend and the rates I'm willing to lend at. That said, I am not dealing with companies directly and I'm not that selective. I plan to manage risks by lending small amounts to 100s, if not 1000s, of companies rather than try and be too clever about credit research. Debt collection and recovery is managed by funding circle. Please let me know if you need anything else.



Leave this with me while I draft my answer.
Hi again.

You may have already read the notes here but I thought I'd give you the link as they really are quite good.

1 Depending on how the peer to peer lending develops, how much time you devote to it and what proportion of your overall income it provides, you may well find that HMRC say that you are operating a business and that you should be charged to income tax and national insurance contributions on your profits. Class 2 and Class 4NIC would only be payable if you are below state pension age. It could take years to reach that stage however and you may have to bite the bullet yourself and register as self-employed if the lending is successful before HMRC hit you with backdated NIC charges. You'll pay tax in any event.

This is a relatively new approach to lending and it sometimes takes HMRC years to catch up and formulate a policy on new money making ideas. The problem you have is that until HMRC ask you the questions about how you run your lending operation, you don't know what their attitude will be. I'd be inclined to start out by disclosing the interest you receive as investment income as opposed to business income and see how things progress. You'll pay tax on the interest but you won't pay NIC on it. If you have to write off loans as bad debts you can only claim them as capital losses which can only be offset against capital gains and not against income. Take a look here for more information on that. There can be tax implications where you transfer a loan in exchange for a payment to anothyer lender.

2 If you become self-employed, you will pay tax and NIC (subject to your age). You will be able to write off bad debts against your income from the business and if you make an overall loss, you should be able to claim tax relief against your other income sources. However, if HMRC say that you are not running the business with a view to making a profit, they may disallow any loss claim against other income. You can read about setting yourself up as self-employed here.

I would have thought that Funding Circle have a lenders forum and you would do worse than to gauge opinion there to find out how other lenders approach the tax issues.

I hope this helps but let me know if you have any further questions.
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Customer: replied 3 years ago.

That's excellent, thanks. I've tried the money lending forums and nothing that helpful... just lots of people speculating how much lending to how many companies might be classified as carrying out a money lending trade!

Thanks for accepting my answer and good luck with the lending.