Based on a new ruling from HMRC on the way it interprets personal tax deductions, from 6th April 2015, personal taxpayers who lend on P2P platforms, including Zopa, will no longer be able to deduct their lending fees from interest income they receive under their loan contracts.
If we were to continue to charge Annual Lender Fees to those lenders, they would be responsible for paying tax on their interest from borrowers before the deduction of those fees.
So, after consultation with HMRC we are making a change to the way we cover the costs of administering these lenders’ loan contracts.
This change will not increase the cost to borrowers, or change their repayment obligations, since the interest rates offered by all lenders have always reflected their obligation to pay the Annual Lender Fee.
Nor will it reduce the net return to individual lenders, since the amount of the Loan Servicing Fee deducted by us from each repayment will be the same as the Annual Lender Fee.
Lenders will not be liable for any extra tax as a result of the change in HMRC’s treatment of lending fees.
Changes to my loan book
Currently, My Loan Book shows the lender rates before fees. We will need to update this to remove any suggestion that lenders are obliged to pay fees.
Separately, we have received a lot of feedback and suggestions on how to make the information more insightful and actionable. So, we will be re-designing the information we share, and how we share it, as part of this process. We will be involving lenders in the design of a more user-friendly solution.
In the interim, we will keep My Loan Book ‘live’ so that core data remains available while we correct the rates and update the design.
Transitioning to the new fee arrangement
Currently, we accrue Annual Lender Fees on a daily basis and collect them on the 27th of each month (this is why the Holding Account sometimes shows negative amounts). The new Loan Servicing Fees will be deducted directly from each borrower’s repayment.
This means that, for April loan repayments, some Annual Lender Fees will have already been accrued and charged, while the Loan Servicing Fee would also be charged on the same associated repayments. As a result, some lenders will initially appear to earn less than expected in April. Once the new arrangements have cycled through for a full month we will be able to calculate the exact amount that has been double counted for each lender’s loans and rebate each lender the exact amount so no one loses out.