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  1. P2P income and tax

    Interest earned from peer-to-peer lending is taxable, but whether or not you need to pay any tax depends on your personal circumstances. 

    You may not be required to declare your income if your total interest falls within the new Personal Savings Allowance (£1,000 of interest each year for basic rate taxpayers and £500 for higher rate), and/or if your interest is earned within the new Innovative Finance ISA.

    If you do need to pay any tax, please note that we do not make any tax deductions from your account, so you'll need to declare your income to HMRC separately. To declare your income you'll need to include your P2P interest on your Self Assessment Tax Return under the section 'Interest and dividends from UK banks, building societies etc'. If you don’t normally complete a Self Assessment Tax Return, you should let your local Tax Office know about your P2P interest so they can advise you. If you pay tax under Pay As You Earn (PAYE) your tax code will then normally be adjusted to collect the tax due on the interest you have earned.

    For more information on completing Self Assessment Tax Returns, please click here.

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  2. What you need to declare

    HMRC has provided the following guidance for individuals investing in peer to peer loans, reporting interest and claiming losses from loans that default.

    We summarise your total earnings for the tax year in your lender account statement. It remains your responsibility to pay any tax due on interest and other payments received in relation to your loans. We do not deduct any tax from interest or other sums paid to you.

    The tax treatment depends on your individual circumstances and may be subject to change in future. If you have any questions on tax you should seek advice from an independent financial or tax advisor, or from HMRC, whose details are set out on their website at hmrc.gov.uk.

    For more on how to pay tax on your P2P income, please click here.

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  3. Innovative Finance ISA (IFISA)

    At his Budget speech in 2014, then-Chancellor George Osborne made a game-changing announcement for peer-to-peer lending platforms in the UK by revealing that lenders would be able to hold their loans (and the interest earned on them) within the Individual Savings Account (ISA) framework. The opportunity to earn tax-free returns was a significant boost to the appeal of lending money with a platform such as Lending Works, which already offers market-leading rates of return.

    At the Summer Budget in 2015, HM Treasury (HMT) then confirmed that a separate Innovative Finance ISA (IFISA) category would be created (which went live on 6 April 2016), in addition to the existing Cash and Stocks & Shares ISA categories. The ISA allowance (up to £20,000 each year in 2017/18) would thus be shared across all three ISA categories.

    Eligibility for offering the IFISA is contingent upon the peer-to-peer lending platform having both full FCA authorisation, and, subsequently, ISA manager approval from HM Revenue & Customs. Lending Works received confirmation of both these permissions in October 2016, thus paving the way for the launch of the Lending Works ISA in February 2017.

    You can find out more about how IFISAs will work, the rules pertaining to them, and the benefits they bring to those lending through P2P by clicking here.

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  4. Personal Savings Allowance (PSA)

    As of 6 April 2016, the first £1,000 of income earned from savings accounts and peer-to-peer lending platforms are tax-free for basic-rate taxpayers. This amount drops to £500 for higher-rate taxpayers (additional rate taxpayers are not eligible for the PSA). Note: income earned from stocks & shares does not qualify for the PSA.

    You can read more about the Personal Savings Allowance by clicking here, or by consulting the latest guide to the framework as set out by HMRC and HMT.

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  5. How are cashback/promotion credits treated for tax purposes?

    We’re often asked this, and the answer depends on both the nature of the payment and your personal circumstances (for example if you are investing through a company or in the course of your business), but we’ve provided a general summary below:

    “Refer a friend” bonuses

    Any payments received by an existing customer referring a friend or relative could be liable to income tax and should be declared as income to HMRC.

    However, any payments received by a new customer as an inducement to join Lending Works would generally not be liable to income tax and therefore wouldn’t need to be declared as income to HMRC.

    Further guidance from HMRC on miscellaneous income can be found here.

    Promotion/incentive and other account credits

    Promotion/incentive and other account credits generally relate to one-off cashback promotions or adjustments to your account and are generally not liable to income tax. Therefore, these payments wouldn’t need to be declared as income to HMRC.

    Further guidance from HMRC on 'cash-backs' can be found here.

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  6. Overseas lenders

    To lend with us, lenders do not need to live in the UK. However, lenders are required to transfer funds from a UK bank account and they must also be registered to pay tax here. We might also need some additional documentation to satisfy our anti-money laundering (AML) obligations. All returns earned through peer-to-peer lending will be subject to tax laws of the UK, and lenders living abroad will thus need to follow the procedures highlighted above when it comes to declaring their lender income to HMRC.

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