Bounce back loan scheme, use to pay off another loan

[knitware]

Hello. Just a quick question. Could you apply for the above loan and use the money to pay off a private loan? If successful in gaining a bounce back loan how do you draw from the business account without tax, dividend tax. Could you pay directly from the business account to the loan account, this would reduce the amount needed to draw every month. I hope that this makes sense?

[anonymous-user]

Your business (assuming it's a legal entity in its own right and you're not a sole trader/partnership) is separate from you. Your business can't borrow money and use it to pay your personal debts without that money being some form of income or loan (unless you have loaned the company money and it's owed back to you).

Aside from the moral question of whether you should take tax payer underwritten loans and use them to cheapen your personal debt, if the company were to fail leaving the government out of pocket, having taken the funds for yourself, I doubt there'd be too much sympathy in the reckoning.

[knitware]

Thank you for the reply. I was thinking and sharing those thoughts in how to reduce outgoings during lean times, draw less from the business, and how a business loan could help with that, certainly not to avoid tax.

[chrispmartha]

I am thinking of doing the same, my personal debt was for the company though so I have paid it in to the company, morally probably questionable but as it seems the same in your situation it will mean I can take less cash out every month

[knitware]

I'll ask my accountant regarding this. I think the way forward could be a directors loan paid to yourself and pay a dividend to the loan account to clear the directors loan,maybe?

[chrispmartha]

knitware said:

I'll ask my accountant regarding this. I think the way forward could be a directors loan paid to yourself and pay a dividend to the loan account to clear the directors loan,maybe?

That's pretty much what my accountant suggested.

[anonymous-user]

If you personally borrowed money and lent it to the business, then the business can repay its debt to you and you can, in turn, repay the personal debt

If the company doesn't owe you any money then there are a variety of ways that you can use any money that the company can spare (i.e. without leaving it in difficulty) to repay your personal debts. A non exhaustive list might include Directors loan, salary, dividend, purchase of an asset from you, getting up to date with expenses you have incurred but not been paid for. Each of these mechanisms has its own implications for you and the company in terms of tax, accounting and other matters. If you are in any doubt about the best way for you and the company, seek suitably qualified advice.

Don't simply transfer the BBL straight into your personal account and then repay personal debts without properly accounting for the way it has been done

[PrancingHorses]

I guess you can..

https://www.moneysavingexpert.com/news/2020/05/sma...

[Terminator X]

janesmith1950 said:

Your business (assuming it's a legal entity in its own right and you're not a sole trader/partnership) is separate from you. Your business can't borrow money and use it to pay your personal debts without that money being some form of income or loan (unless you have loaned the company money and it's owed back to you).

Aside from the moral question of whether you should take tax payer underwritten loans and use them to cheapen your personal debt, if the company were to fail leaving the government out of pocket, having taken the funds for yourself, I doubt there'd be too much sympathy in the reckoning.

The loan / a loan isn't company incurred income though so surely it sits in the account as if it were Directors money eg just like if the OP had taken out a personal loan and deposited it in the business account? If so it can surely be removed at any time for anything? As you say though morally questionable ...

TX.

[anonymous-user]

Terminator X said:

The loan / a loan isn't company incurred income though so surely it sits in the account as if it were Directors money eg just like if the OP had taken out a personal loan and deposited it in the business account? If so it can surely be removed at any time for anything? As you say though morally questionable ...

TX.

But it is the company's money, not the Director's. If the Director takes money from the company, it has to be dealt with accordingly. What the Director does with it subsequently will be of no concern to the company or the lender if it has been done properly.

[Terminator X]

JPJPJP said:

Terminator X said:

The loan / a loan isn't company incurred income though so surely it sits in the account as if it were Directors money eg just like if the OP had taken out a personal loan and deposited it in the business account? If so it can surely be removed at any time for anything? As you say though morally questionable ...

TX.

But it is the company's money, not the Director's. If the Director takes money from the company, it has to be dealt with accordingly. What the Director does with it subsequently will be of no concern to the company or the lender if it has been done properly.

It's a loan though so won't incur VAT or Corp Tax. If not used to pay salaries or expenses are you saying the only way to draw it down is as a Dividend meaning it would be subject to small ish Div Tax?

TX.

[anonymous-user]

Terminator X said:

It's a loan though so won't incur VAT or Corp Tax. If not used to pay salaries or expenses are you saying the only way to draw it down is as a Dividend meaning it would be subject to small ish Div Tax?

TX.

I'm not an accountant (Eric's your man), however if the company borrows money it's the companies money. As detailed above, there are limited ways the company can distribute money and these attract different tax treatments.

If the company currently owes money to the directors loan account, then I'd imagine that is the most tax efficient way the money could leave the company. It could then be used by the director as he wishes. Beware though if the company subsequently fails and defaults on the loan, it wouldn't look good if a director had used the bounce back money to clear personal debts.

[anonymous-user]

Terminator X said:

It's a loan though so won't incur VAT or Corp Tax. If not used to pay salaries or expenses are you saying the only way to draw it down is as a Dividend meaning it would be subject to small ish Div Tax?

TX.

dividends can only be paid from profits generally speaking - if there is no profit / other reserves to distribute then the BBL can't be taken by shareholders that way

the company can lend the money to the Director and the rules governing such loans are well established - there are tax implications for both sides

as others have said, it the company takes a bbl and doesn't bb, then what happened to the bbl may well be looked at carefully

[Fubar1977]

Assuming you have a Ltd. Co and a Directors Loan Account, what is the state of that account at the moment?

For example, our DLA is currently approx 20k "in the Black" meaning, according to our accountant, we as Directors can take up to 20k out as the company owes it to us. However, there is not 20k available to actually take out.
If we were to take the money from the BounceBack loan and then withdraw it and pay it out to the Directors and then the company folded further down the road the I suspect we'd be in for quite a hard time justifying that course of action.

I'm sure a dim view would be taken of using Business support funds to ultimately deal with personal finance issues so I'd be very careful how you proceed and take professional advice first.

[Dixy]

Do these loans have a cut off date for applications to be made by.