by Acuaccounts | Jul 9, 2021 | accounting, covid19, Loans, lockdown, tax
The Bounce Back Loan Scheme (BBLS) closed officially on 31 March 2021. Launched in April 2020, Government-backed Bounce Back Loans permitted businesses to borrow between £2,000 and £50,000 based on up to 25 per cent of turnover. More than 1.5million loans have been issued by participating banks, worth an overall £46.6 billion with a 100% government guarantee. Loans were issued quickly with little checking, and the government now estimates that up to 60% of the money loaned under the scheme may never be paid back. With repayments now due, or due to start soon, for many loan applicants, here’s an overview of what comes next.
From financial lifeline to mounting debt for many
The length of the bounce back loan was set as six years. Businesses deciding to pay it back early will be able to do so without incurring a fee. For most businesses, the BBLS repayment is due now or will be due shortly. Thankfully there has been some respite given to those businesses still recovering from the pandemic. The Pay As You Grow (PAYG) scheme announced in September grants businesses struggling to repay the loan various options in collaboration with their lender.
- Businesses with a Bounce Back Loan can request a loan extension from six to ten years, with a fixed interest rate of 2.5 per cent.
- Borrowers can request three times during the loan period to reduce monthly repayments for six months by paying interest only.
- Businesses can request to take a single repayment holiday for up to six months.
What happens to businesses that think they can’t repay the loan?
Businesses worried that they may be unable to pay back their loan, should have a conversation with their accountant and their lender. The lender should review the Pay As You Grow options mentioned above. Lenders are likely to want to establish whether the business is viable. This is also a conversation to have with your accountant or financial advisor and you can contact AcuAccounts for any questions regarding business viability and cash flow.
Even if a business is deemed not viable it still remains liable for the loan, despite the government guarantee. The lender might place the business into their debt recovery and collections process. If a business decides to take advantage of any of the Pay As You Grow options, both lender and borrower need to have a clear understanding of how these options will affect future repayments. If a business is considering making Bounce Back Loan repayments but also has other debts to repay, it is vital to make a plan and analyse which repayments should be prioritised – depending on factors like the overall cost of the debt and monthly repayment amounts.
Can a company be liquidated if it has taken out a Bounce Back Loan?
Striking off a business is an option only available to businesses with no company debts. The bounce back loan is considered a company debt and therefore the business cannot be dissolved if the BBLS remains due. Company directors ignoring the interests of their creditors risk finding themselves in the firing line of an Insolvency Service investigation when the company enters liquidation.
If a limited company wants to pursue a company strike off with an outstanding Bounce Back Loan, rather than a formal insolvency route, it risks an “Objection to Company Strike Off Notice” and this can trigger an investigation by the Insolvency Service. If a business becomes insolvent because it is unable to recover from the impact of COVID-19, and cannot repay its loan, liability lies with the company and not the directors or other shareholders. However, this only applies if the directors have complied with their statutory and fiduciary duties, and the loan has been used per its terms and conditions.
How to evaluate financial viability with a Bounce Back Loan?
Aside from the options of the PAYG scheme, it is understandable that businesses might be unable to repay their BBLS, especially if the business was unable to operate for long periods of time. For business owners who are struggling, it is key not to spend all of the BBLS and then look to liquidate.
Directors need to take a long hard look at their company finances and their business model to evaluate, potentially with the help of an accountant, whether the business has a realistic chance of survival and can continue trading.
If a company director believes in a positive outcome, then as well as the PAYG scheme, there are alternative means of finance available like invoice financing and commercial finance. If a company director believes the business doesn’t have a viable future, it could be time to look at closing the company down and entering a formal insolvency process.
Introducing the Recovery Loan Scheme
The Recovery Loan Scheme was announced by the government at the beginning of March 2021 to support access to finance for UK businesses in the process of growing and recovering from the disruption of the COVID-19 pandemic. The Recovery Loan Scheme aims to help businesses of any size access loans and additional finance with up to £10 million available per business. However, the amount and terms offered are at the discretion of participating lenders. The government guarantees 80% of the finance to the lender while the borrower remains 100% liable for the debt.
Loans are available through a network of accredited lenders, listed on the British Business Bank’s website.
Businesses can apply for a loan if the company is trading in the UK and can show that the business:
- would be viable were it not for the pandemic
- has been adversely impacted by the pandemic
- is not in collective insolvency proceedings
Businesses that have received support under the earlier COVID-19 guaranteed loan schemes like the BBLS are still eligible to access finance under this scheme if they meet all other eligibility criteria. Businesses from any sector can apply, except banks, building societies, insurers and reinsurers (excluding insurance brokers), public-sector bodies and state-funded primary and secondary schools.
Businesses can get term loans or overdrafts of between £25,001 and £10 million per business as well as invoice or asset finance of between £1,000 and £10 million. No personal guarantees are taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security. The maximum length of the borrowing facility depends on the type and will be:
- up to 3 years for overdrafts and invoice finance facilities
- up to 6 years for loans and asset finance facilities
The Recovery Loan Scheme scheme is open until 31 December 2021, subject to review.
Do you have questions about your business’s financial future or want to evaluate your loan options? Have a look at our services and feel free to get in touch with us.
You can book a consultation at info@acuaccounts.com or call us directly on 0203 907 9027.
by Acuaccounts | Nov 6, 2020 | accounting, Loans, tax
As England goes back into a national lockdown this November the chancellor has announced a new series of measures increasing the support previously announced with the Winter Economic Plan which included the following highlights:
- Extension of the Coronavirus Job Retention Scheme further (the furlough scheme), until the end of March
- Job Retention Bonus of £1,000 per retained employee will not be paid in February but instead redeployed a retention incentive at the right time
- Increase the third self-employed grant, covering November to January, from 55% to 80% of trading profits.
Extension of the Coronavirus Jobs Retention Scheme (CJRS): Furlough again at 80%
- The government is extending the CJRS until the end of March for all parts of the UK. To be reviewed in January to decide whether economic circumstances are improving enough to ask employers to contribute more. The Job Support Scheme is postponed.
- Eligible employees will receive 80% of their usual salary for hours not worked, up to a maximum of £2,500 per month.
- Employer flexibility: Businesses will have the flexibility to use the scheme for employees for any amount of time and shift pattern, including furloughing employees full-time.
- Employer contribution: There will be NO employer contribution to wages for hours not worked. Employers will only be asked to cover National Insurance and Employer pension contributions for hours not worked. For an average claim, this accounts for just 5% of total employment costs or £70 per employee per month.
- Payment: The extended CJRS will operate as the previous Scheme did, with businesses being able to claim either shortly before, during, or after running payroll. Claims can be made from 8 am Wednesday 11 November. Claims made for November must be submitted to HMRC by no later than 14 December 2020. Claims relating to each subsequent month should be submitted by day 14 of the following month, to ensure prompt claims following the end of the month which is the subject of the claim.
- Employee eligibility: Neither the employer nor the employee needs to have previously claimed or have been claimed for under CJRS to make a claim under the extended CJRS (if other eligibility criteria are met). An employer can claim for employees who were employed and on their PAYE payroll on 30 October 2020. The employer must have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 30 October 2020, notifying a payment of earnings for that employee.
- Employees that are re-employed: Employees that were employed and on the payroll on 23 September 2020 (the day before the Job Support Scheme announcement) who were made redundant or stopped working afterwards can be re-employed and claimed for. The employer must have made an RTI submission to HMRC from 20 March 2020 to 23 September 2020, notifying a payment of earnings for those employees.
More support announced for the self-employed at 80% of trading profits capped at £2,500/month
- The government has recently announced an extension of the Self-Employment Income Support Scheme to support self-employed individuals which will be returned the overall level of the grant to 80% of trading profits covering November to January for all parts of the UK. This provides equivalent support to the self-employed as we are providing to employees through the government contribution in the CJRS. It is calculated based on 80% of 3 months’ average trading profits, paid out in a single instalment and capped at £7,500.
- Timing: HMRC will pay this more generous grant sooner than planned and in time for Christmas – the window for claiming a grant will open on 30 November, two weeks earlier than previously announced.
- The Government has already announced that there will be a fourth SEISS grant covering February to April. The Government will set out further details, including the level, of the fourth grant in due course.
More financial support for local businesses in England and extension of loan schemes including BBL
- Businesses in England that are forced to close due to national or local restrictions will receive up to £3,000 per month. This will benefit over 600,000 business premises.
- 90% of small and medium-sized business premises in the closed Retail, Hospitality, and Leisure sectors should broadly have their monthly rent covered by these grants (based on VOA data on Rateable Values as the best proxy we have for rent).
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The application deadline for loan schemes – that is, the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme, Future Fund, and Coronavirus Large Business Interruption Loan Scheme – has been extended to the end of January 2021. This will give businesses two extra months to make loan applications (relative to the current deadline of 30 November).
- The Bounce Back Loan Scheme rules will be adjusted to allow those businesses who have borrowed less than their maximum (i.e. the lower of £50,000 or less than 25% of their turnover) to top-up their existing loan. Businesses will be able to take-up this option from next week; they can make use of this option once. Some businesses might not have anticipated the disruption to their business from the pandemic would go on for this long; this will ensure that they are able to benefit from the loan scheme as intended.
To find out what the recent announcement means for your business get in touch via email or phone.
For more information about what has been outlined above the full updates are at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/932977/ECONOMIC_SUPPORT_FACTSHEET_5_November.pdf
#Employer #Employee #Salary #Wages #PAYE #business #update #coronavirus #covid19 #income #support #SEISS
by Acuaccounts | Oct 16, 2018 | Loans
Directors Loans can cause tax complications which many small business owners are unaware of. In fact, they often only come to light when accounts are prepared, and it is realised that the owner/director has withdrawn more cash than taken in the form of dividends.
The actual making of the loan does not trigger any tax charges though care should be taken that the loan is not treated as a salary payment. If it is be treated as salary, then PAYE must be applied at the time the funds are made available to the director. So be careful in your descriptions of the withdrawal.
Then there are tax consequences for the period that any directors’ loans are outstanding. The director will incur a benefit in kind charge if the loan exceeds £10,000 at any time during the tax year. If the director pays interest to the company the benefit can be reduced and even eliminated but there are certain conditions attaching to this. The company itself will have what is known as a section 455 liability (based on the section of the relevant legislation) if the loan remains outstanding for more than 9 months and 1 day after the end of the accounting period in which the loan is made. The s455 tax will be applied and at the current rate of 32.5% of the amount of the loan outstanding at that time.
If the loan is repaid by the director/shareholder, the company will obtain a refund from HMRC of the s455 tax that has been paid. This is repayable 9 months and 1 day after the end of the accounting period in which the loan is repaid. So, you end up making a lengthy interest-free loan to the government! In recent years the introduction of specific anti-avoidance legislation has tightened up the loan rules.
Company law states that a company making directors loans must seek the approval of its shareholders though there is an exception to this if the loan is less than £10,000. Technically, the company may require immediate repayment of the amount borrowed but that is unlikely to happen with a small owner-managed company. If the loan is later written off, then further tax implications arise. The director/shareholder is treated as receiving a dividend equal to the amount of the loan which is charged to income tax. The amount written off is also subject to Class 1 NIC.
HMRC are trying to discourage companies directors loans, especially if the company is in financial difficulty. The best way in our opinion is to keep your accounting records up to date so that you know how much you can withdraw safely from the company at any time.
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