Bounce back loan scheme was introduced to support businesses going through hard times due to the Coronavirus.

This loan is backed by HMRC through the British business bank 100%.

The reason why they introduced this loan is that the Coronavirus interruption loan was backed up only 80% was not accessible to business struggling due to the pandemic.

Conditions to meet to apply for a bounce back loan.

The bounce-back loan is meant to support the business that is going through hard times.

To be able to apply for this loan, you must be a business in the UK trading before 1st March 2020.

You must have been adversely affected by the corona virus

You can apply for loan from £2,000 and £50,000.

However, the amount of loan that you can obtain is limited to 25% of the turnover of the business.

This loan term is for 6 years, the first year is interest-free and however after that is 2.5% which is quite low.

Deadline for application for this loan is November 2020.

What can this loan be used for in the business?

The purpose of this loan is to support businesses going through cash flow problems due to the pandemic.

The loan can be uses to pay for expenses or acquire new assets.

What happens if the money is loaned to the Director for personal use?

The director could withdraw the money from the business for personal use.

The company can decide to pay the money as a salary.

If this is done, this will have to be reported under PAYE on real-time submission.

The director would have to pay tax and the national insurance and tax on the amount.

However, if this is not the case, you have collected a loan from your company, a cheap loan.

Consequences of receiving a cheap loan from your limited company

When a cheap loan is given to a participator of the limited company it is a taxable benefit

The director would pay tax whilst the limited company pays class 1a national insurance on the benefit.

Also, there is a loan charge payable by the company giving the cheap loan to the director.

This charge is due if the loan is still outstanding and unpaid by 9months and 1 day after the company’s accounting year-end.

This loan charge is at 32.5% on the outstanding amount.

This amount will be refunded back to the company when the loan is paid back by the director or its waived off to the director.

What happens if the loan is waived off to the director?

When the loan is waived to the director, it’s treated as a distribution from the company

Therefore, the director/shareholder would have to pay dividend tax which could be 7.5%,32.5% or 38.5% depending on the tax band.

Conclusion on bounce back loan.

Just like any loan when received it would have to be paid back.

Therefore, I would advise that the business owner should only apply for this loan if they have been seriously affected by the Coronavirus pandemic.

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