1. Obligations of the borrower
A company who pays interest on finance that was raised via Peer to Peer lending or Crowd Funding is obliged, under the provisions of Section 246(2) TCA 1997, to withhold income tax at the standard rate of tax on interest payments made on the finance raised.
1.1 Procedures to be followed by the borrower
The company that has received the finance must -
- withhold tax, at the standard rate of tax, on any interest payments being made;
- issue a Form R185, in respect of each interest payment, to the lender (the loan agreement between the lender and borrower will have to be looked at to determine who the lender is and to whom the Form R185 is to be issued); and
- the company is required to account for the withholding tax deducted on its annual
Form CT1 Pay and File Corporation Tax Return. The amount of withholding tax
deducted should be entered in the Recovery of Income Tax on Payments panel of the Form CT1 and remitted to Revenue.
1.1.1 Direct lending structures
If the loan agreement is between the company and the individual lender the Form R185 should be issued to each individual lender. While a Form R185 is required to be issued in respect of each interest payment, in order to ease the administrative burden on the company in receipt of funding via Peer to Peer Lending Company / Crowd Funding, Revenue will accept a Form R185 that covers multiple interest payments in the one year to the same lender as follows:
Interest payments made from the date of the first payment in any year to the 31st December in the same year
Interest payments made from the 1st January to the 31st December of the same year, or
Interest payments made from the 1st January to the date of the last payment in the same year
1.1.2 Indirect lending structures
If the loan agreement in the above example was between Fundsneeded Limited and the Peer to Peer Lending Company, with a separate loan agreement between Peer to Peer Lending Company and the individual investors then:
- one Form R185 should be issued to the Peer to Peer Lending Company / Crowd Funding Company and one Form R185 should be issued by the Peer to Peer Lending Company / Crowd Funding Company to each of the investors on each of the dates above.
1.2 Exemptions from the general rule to withhold tax under Section 246
Section 246(3) TCA 1997 contains an extensive range of exemptions from the general rule to withhold tax under the provisions of section 246(2) TCA 19971. While these exemptions are not available in respect of interest payments made to an individual resident in the State the exemptions can be allowed automatically in respect of other interest payments and do not require prior approval from Revenue.
A company must be clearly able to demonstrate why a particular exemption was utilised.
1 As these are unlikely to be of relevance in a crowd funding or Peer to Peer lending situation they are not dealt with in this manual. They are covered in Tax and Duty Manual Part 08-03-06 which deals with section 246 in detail.
2 Obligations of the underlying lenders
The underlying lenders to a Peer to Peer Lending Company / Crowd Funding Company are liable to pay income tax:
- under Schedule D Case IV on any interest they earn on which withholding tax has been suffered,
- under Schedule D Case III on any interest they earn that has not suffered withholding tax.
This applies in respect of interest earned on money lent to either an Irish or foreign Peer to Peer Lending Company / Crowd Funding Company.