Paying tax on Peer-to-Peer investments is something you should pay close attention to because it’s so easy to simply ignore it. Revenue has a habit of catching up with people who don’t pay taxes. That said, It’s not easy to find clear guidance on the issue of paying tax on Peer-to-Peer investments. Probably because the concept is relatively new but Revenue has the reputation of being the most progressive government body in Ireland.
How do I find out about Paying Tax on Peer-to-Peer investments?
I am doing a few things in this article:
- I am reminding you that the onus is on you to pay your taxes.
- I am pointing to the materials I have found so far on the topic (with an Irish perspective) as I have tried to learn what the hell I need to do.
- I am illustrating my own approach to paying tax on peer-to-peer investments that I have earned income from in 2018. Bear in mind, I have no idea what I am doing as this is my first time. Be gentle.
- I am VERY briefly discussing taxes due on stocks and shares I have with Degiro.
Do the Peer-to-Peer platforms automatically deduct tax?
The short answer is, no. The slightly longer answer is, I have not yet come across a platforms that deducts tax automatically. P2P platforms are international so they cannot possibly manage the tax of their investors as the tax laws are different in every country and they change all the time. This is a quote from the FAQ on Grupeer that illustrates their position well.
Is the income from deals concluded through Grupeer Platform subject to taxation? If so, what is the applicable tax rate?
According to the legislation of the European Union, the place of conclusion of a deal when purchasing a product or service is the location of the acquirer. Accordingly, the income receival jurisdiction is the country of your residence, or registration. When you withdraw money from the Platform account to your personal bank account, you pay the tax in accordance with the laws of your tax jurisdiction.
For clarity, I think the last sentence of this should be rephrased to “When you withdraw money from the Platform account to your personal bank account, you are legally obligated to pay the tax in accordance with the laws of your tax jurisdiction.” However, the interesting thing to note there is that they say “when you withdraw money from the Platform account to your personal bank account”.
That implies that you could have a sum of money invested in the platform and earning interest but you would only be liable to income tax when you withdraw it. So depending on your own personal tax circumstances there may be more optimal times for you to withdraw money from your platforms. For the purposes of this article I am going to assume that I have withdrawn all interest payments from all my Peer-2-Peer platforms.
The Co-Founder of Flender Says: Pay Your Tax
I recently discovered a podcast by an Irish Financial Adviser, it’s called “Informed Decisions” and it contains an episode that deals with the topic of peer-to-peer lending in Ireland. The subject of tax is briefly discussed.
The host, Paddy Delaney, is a Qualified Financial Advisor (QFA). He talks to Flender co-founder, Oli Cavanagh, and Oli tells us that it’s up to individual investors to manage paying tax (time index: 24:20). Interestingly, during the brief discussion on paying tax, they allude to the possibility that it may be more tax efficient to lend on peer-2-peer via a company, something I will have to look into.
You can listen to it here via Stitcher or you can get it directly on the Informed Descions website. Also, here is the very straight-forward response to the tax question which I am quoting from the FAQ of the Ireland-based Peer-to-Peer platform, Flender:
Tax is not deducted from your lending returns on Flender. Therefore, you will need to file a self-assessment tax return showing the interest you have received from your borrowers. For most people, lending on Flender will be considered an investment activity and will qualify as unearned income for taxation purposes. You will be able to access your lending return information from your Flender account.
What does Revenue have to say about paying tax on Peer-to-Peer investments?
- a company that is borrowing money through peer-to-peer
- a company that is investing in peer-to-peer platforms
- someone like me, i.e. a lowly PAYE worker who is an individual who is investing in peer-to-peer.
Step 1 - Read the Guidelines from Revenue on Paying Tax on Peer-to-Peer Investments
I downloaded and read (several times) Revenue’s guidelines and figured out which bits I think apply to me including this bit:
If the underlying investor is an individual The gross interest payment, before withholding tax has been deducted, should be included on the individual’s annual return of income. The type of return you must complete depends on whether you are registered for self-assessment or a Pay As You Earn (PAYE) worker.
And this bit:
If you are a PAYE worker:
Where you earn less than €5,000 from non-PAYE sources you should include the interest on your Form 12 and claim a credit for the withholding tax suffered. Use myAccount to submit your Form 12 online through PAYE Services
- I am normally a PAYE worker.
- I don’t have a company so I am considered an individual (but I do have tentative daydreams about setting one up for no good reason).
- I certainly did not earn €5,000 from non-PAYE sources in 2018 (unlike Jørgen from FinanciallyFree.eu! His income statements are scary).
Step 2 - Find Out How Much You Earned From Peer-to-Peer Investments in the Year
In 2018 I invested into five different peer-to-peer platforms:
This week, I visited each one to export an account statement for 2018. There are some variances between these platforms in terms of the format of the statements but in general it is very easy to get the information you need. Allow me to summarise what I earned on each one of these accounts.
|Platform||Interest Earned in 2018||Comments|
|Swaper (this is an affiliate link)||56.34||Basic and straight forward process to export a spreadsheet of itemised transactions. They have a "Last Year" snapshot button on their website.|
|Mintos (this is an affiliate link)||193.01||Basic and straight forward process to export a spreadsheet of itemised transactions. They don't have a "last year" snapshot button on their website.|
|Viventor||91.61||The export file here is by far the best formatted with sortable columns built in and a summary on top. Very easy to use and well considered.|
|Envestio*||10.37||You can download a spreadsheet of transactions and you can download a tax summary. They have a "last year" button on their online search function. *this platform turned out to be a scam, read more here|
|Grupeer*||106.07||You can download a PDF income statement for a range of dates so that bit is straight forward enough. * Possible Scam as of April 2020|
Step 3 - Log onto ROS or MyAccount and Declare the Income
I am registered for ROS and have access to the same MyAccount functions via this platform.
Select PAYE Services for the appropriate year.
Click on Amend to add details of extra income.
If you have not submitted your Form 12 yet then you can just fill it all in step-by-step. I had already declared the income under the rent-a-room I got in 2018.
Make your way through the various sections of the Form 12 until you get to section 4 “Non-PAYE Income”
You typically confirm your details and answer straight forward questions. If you are completing this Form 12 for the first time you will need a copy of your P60 from any employments you had in the same year.
In Section 4, pick the right category to file the non-PAYE income under.
Which one do I chose? Well, I reached out to Revenue for some clarification. I told them that the income came from Peer-2-Peer platforms all based outside of Ireland and the UK but within the EU. I also asked if there was any difference in the rate of tax that you would pay depending on which category you put it filed it under.
Guess what? I’m still waiting on a response…
I asked a few people on boards.ie and the advice there was “doesn’t matter so much which box you pick just make sure your sums are accurate”. I am happy with my sums and this category seems to fit.
Check the box that says this is Foreign income and ignore Foreign Rental Income.
Input details of the source, the gross amount and any deductions.
- Source of Income
Peer-2-Peer Lending Platforms
- Gross Amount:
My gross amount was 351.33
- Non-refundable foreign tax deducted:
This was zero for me. In general the Peer-2-Peer lending platforms don’t withhold any tax on investment income. If, like me, you have stocks with Degiro you will have some tax deducted on dividends automatically.
Declare that you believe everything is all correct and in order.
Digitally sign the submission and you’re done!
Well, almost done, there’s just the small matter of the bill darling. Revenue will issue you an updated end of year statement based on your submission and they will let you know how much you owe.
In my case they simply adjusted my tax credits for the outstanding amount for the next year which means I will pay slightly higher tax until the recoup €157.07
A Brief Note on Paying Tax on Stocks & Shares with Degiro
Tax on stocks and shares are dealt with slightly differently and they go under a different category. There is also often tax withheld on dividends which can be deducted from the gross liable amount. Also is matters where the stocks are held. My plan is to research it a little more and then make a post about it separately.
I'm not a Tax Advisor
Take everything you just read with a HUGE pinch of saltdo you own homework and talk to a professional if you need to. I have no idea what I am doing but I’m not afraid to make mistakes. (that might bite me on the ass one day).