248 replies to this topic

[Ann Hodson]

Ah well, I've just written to my MP on this. We just have to keep throwing mud at the wall. This is obviously not "gilts". It's about a level playing field. Eventually we might get through although frankly if the Tories can't see it then what chance Labour will give it high priority?

So much for competition, eh?

[fuzzyiceberg]

The key issue is how to distinguish between loss arising from lending a tenner to an 'anonymous' third party via, say, Zopa and that arising from 'lending' a mate a tenner when you were down the pub and probably had had a pint too many...

If we can crack that one there may be a chance with the Treasury, although likely they may stick to their guns and say there is, in principle, no difference between the two so they must have the same tax treatment.  And we know what treatment that will be    

IMHO Any positive solution (for us, that is) is bound to be tied up with the industry being regulated so as to provide HMRC assurance that it is all legit.  But I'm not holding my breath....

[CKemahli]

Would not the simplest solution be a compensation fund, paid out by Zopa. Personally, I would happily give an additional 0.5% a year in Zopa fees to buy my freedom from bad debt. Although I could just put that 0.5% into a separate account and pay myself a compensation, knowing that Zopa would offset my losses would make me much more inclined to lending larger amounts. A bad year as 2008 seems to have been can be avoided and Zopa can offset the compensation fund as a natural business expense.

Who knows, if the profit is there they could even offer it for free as per their competitors. But I for one would be happy to pay for the privilege of not having to think about bad debt. Perhaps it could even be an opt-in scenario with some people willing to gamble and others sitting back and just leaving Zopa to do its job.

[chilterncom1]

CKemahli, on 10 May 2012 - 12:55, said:

Would not the simplest solution be a compensation fund, paid out by Zopa. Personally, I would happily give an additional 0.5% a year in Zopa fees to buy my freedom from bad debt. Although I could just put that 0.5% into a separate account and pay myself a compensation, knowing that Zopa would offset my losses would make me much more inclined to lending larger amounts. A bad year as 2008 seems to have been can be avoided and Zopa can offset the compensation fund as a natural business expense.

Have you thought through how your suggestion would operate in practice within the framework of the Zopa platform - particularly if you offer people a choice, as you suggest???  

Do you think Zopa wants to accept a transfer of risk from you to it?

[CKemahli]

My example of 0.5% was arbitrary, there must be enough information for Zopa to hazard a calculated guess at  what their potential compensation fund would have to be to cover future losses.  They could then charge people accordingly. Rate Setter have managed to include it, I would presume Zopa with their larger loan book would be in a much better position to generate the returns from their lenders to cover the total losses.

With a compensation fund I would expect to see lenders spread their money more often among the markets. I am currently adverse to lending in the risky markets due to the tax treatment of losses, but with that accounted for I would certainly chase the higher rates available....

[PoohBah]

CKemahli, on 10 May 2012 - 12:55, said:

Who knows, if the profit is there they could even offer it for free as per their competitors.

That is starting to sound like insurance (as opposed to a simple compensation fund) with all the regulatory shenanigans, plus Insurance Premium Tax, that that would entail.

[CKemahli]

Well a simple compensation fund would be best!! Just trying to think how zopa could fund it without damaging their own return..

[Gorgeous George]

A compensation would not work at Zopa IMHO. If there was a compensation fund there would also need to be one market otherwise all lenders would simply offer to the market with the highest rate.

A lender with a well diversified loanbook should hit the average (actual) default rate. With Zopa's bad debt estimates considered to be pessimistic, only the greediest/unluckiest lenders should suffer worse losses than the estimates suggest.

The tax treatment of bad debt is unfair but it's worse for higher rate tax payers. As a basic rate tax payer that makes me feel a little better about it

GG

[soper]

Might add the UK tax advantages to the government?

Most interest from peer to peer lending pays full uk income tax.

While interest paid to banks gets reduced by bank's large cost structures and then reduced further by their tax saving vehicles, so produce comparatively little tax to the UK exchequer.

Increasingly banks are foreigner owned, so not even this small tax revenue is achieved.

Perhaps market research might conclude that the UK's tax revenue may actually increase if this barrier to P2P lending was removed.

[CKemahli]

Interesting thought, I have given some thought as to the future of P2P, as the market matures, receives regulation and gets a proper standing in society. One could easily foresee a time where Credit Cards, Mortgages and Insurance could all be funded via niche p2p companies. Secured loans will surely be the next step. With the nature and flexibility of P2P if we start hearing that Zopa employees are on Barclays-esque bonuses then we can easily switch to another!!

I look forward to seeing how it grows, and would be first in line when Zopa shares are issued!

[Firecat]

I like the idea of Zopa shares! I already invest in crowd funding through Crowdcube based in Exeter University. They have sold shares in themselves through their own funding vehicle, they sold like hot cakes!

Floating Zopa, now there's an idea.

Edited by Uncle Tone, 12 May 2012 - 21:06.
Link corrected. Check for DNS Changer trojan?

[propman]

soper, on 11 May 2012 - 15:31, said:

Might add the UK tax advantages to the government?

Most interest from peer to peer lending pays full uk income tax.

While interest paid to banks gets reduced by bank's large cost structures and then reduced further by their tax saving vehicles, so produce comparatively little tax to the UK exchequer.

Increasingly banks are foreigner owned, so not even this small tax revenue is achieved.

Perhaps market research might conclude that the UK's tax revenue may actually increase if this barrier to P2P lending was removed.

I am not going to try and defend the whole banking industry (I like a challenge, but   ) however, I think this is a little simplistic. Much of the "high cost base" of UK based banks is salaries. While some private equity structures have allowed substantial amounts to be taxed at lower rates, the vast majority will be fully taxed. If you include all the national insurance (Employers and employees), salary taxed at the basic rate of tax suffers over 40%, while even the 45% payable in a year's time will suffer a whopping 53.4%. Of the rest, a fair amount is paid to other UK entities who will also pay it out in highly taxed salaries or pay profit on the profits. Add that the UK government is a major shareholder in 2 of our largest banks, and I don't think I agree with your conclusion.

- PM

[amam]

Count me in   Nothing else to add to this thread

[FailedTheTuringTest]

CKemahli, on 10 May 2012 - 15:14, said:

With a compensation fund I would expect to see lenders spread their money more often among the markets. I am currently adverse to lending in the risky markets due to the tax treatment of losses, but with that accounted for I would certainly chase the higher rates available....

Higher rates are available in riskier markets precisely because there is no compensation fund.  Lenders charge more in those markets to offset higher expected losses.  If we were guaranteed to have no losses, then no market would be any riskier than any other, and there would be no reason to vary interest rates.

A compensation fund would have to raise enough money to equal to the expected losses, and would have to be replenished constantly as defaults occur.  A 0.5% contribution would probably be sufficient to compensate losses in the A* markets, but the contribution would have to be several times higher -- at least as large as the expected losses -- to cover the riskier markets.  

The contribution would actually have to be larger than the expected losses, because the compensation fund ought to be able to weather a run of unusually bad luck or bad economic times.  It will never be large enough to offer absolute protection against all possible losses, though, because to do that the fund would have to be the same size as the total outstanding loans.  There will always be some degree of risk, although you can make it as small as you like by contributing more to the compensation fund.  And although transaction costs would be small, there are always some transaction costs.

In the end, we're paying for our own security one way or another.  At least "self-insurance" (charging more in interest to compensate for potential losses) gives us each the freedom to choose the level of security that we want.  

Psychologically, it hurts more to lose £10 in one go than it does to lose it 5p or 10p at a time in fees, but the total amount of money involved is the same -- in fact the latter could well be more expensive in the long run.

[Ann Hodson]

It took a little while, but I've had a reply and actually (while I'm still not holding my breath ) my MP is being more encouraging than I had expected. His reply is below.

*******************************

Dear Ms Hodson,

Thank you for getting in contact with me regarding Peer to Peer Lending.

I think that you highlight an interesting development in the future of personal and business finance and one that the Government should look at closely. I have already written to HM Treasury to ask them about this issue and what is being done to encourage Peer to Peer lending and I am currently awaiting a response.

I will inform you when I have a received an answer from the Treasury on this matter and will forward you a copy.

I hope that this is helpful, but if you do wish to get back in contact with me, please do not hesitate to do so.

Yours sincerely,

Chris

Chris White MP
MP for Warwick and Leamington

Edited by Ann Hodson, 29 May 2012 - 18:05.

[Uncle Tone]

I think a "Well done you" is in order, Ann.  

[giles]

Uncle Tone, on 29 May 2012 - 18:42, said:

I think a "Well done you" is in order, Ann.  

Agreed. It will be interesting to see if they have finally dropped the daft gilt market comparison in their response.

[Peter29]

Seems the Government want to participate now.
http://www.bbc.co.uk...siness-18273739

Peter

[Ann Hodson]

Thank you Giles and Uncle Tone  

Let's hope that we're gradually moving towards something sensible tax-wise. I know progress is hard to achieve in this sort of area - or takes longer than we'd like - but if there are other people who haven't contacted their MPs it might be worth doing so. It doesn't take long to personalise the useful template provided in the main thread. Just throw a bit more mud at the wall ... some of it will stick with luck !

[vagalboomer]

New to zopa but yes tax should be taken after adjustment for losses.