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Bounce back loan / dividends at 0%

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topgear13

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Sep 9, 2019
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Am I missing something ?

So basically companies can get the BBL and the director can withdrawal it for salary then in 1 years time before interest due repay back the loan using the cash in company’s bank account thus saving 7.5% on dividends.

I also think it’s so open to abuse as it’s a company debt so how many are here “”today gone tomorrow “” and cannot chase a ltd co debt
 
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Yes it's open to abuse by those looking to abuse.

Would you prefer some much more complicated system of loan with decision based on credit rating, likelihood of repayment etc? We have that too and it was not working hence BBL.
That was also subject to abuse by those looking to abuse.

Pretty sure there is not a way to prevent abuse happening by those who really want to do it as business owners.
 
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Mr D said:
Yes it's open to abuse by those looking to abuse.

Would you prefer some much more complicated system of loan with decision based on credit rating, likelihood of repayment etc? We have that too and it was not working hence BBL.
That was also subject to abuse by those looking to abuse.

Pretty sure there is not a way to prevent abuse happening by those who really want to do it as business owners.
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This is only scheme avail to me is this as in my first year of business I only took out £2000 tax free dividends and lived off my wife’s salary. now I have cash in business account it makes sense I don’t need the money out my account but if I can save 7.5% in dividends tax it’s a no brainer
 
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topgear13 said:
This is only scheme avail to me is this as in my first year of business I only took out £2000 tax free dividends and lived off my wife’s salary. now I have cash in business account it makes sense I don’t need the money out my account but if I can save 7.5% in dividends tax it’s a no brainer
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Bigger savings than that - take it as salary and reduces profits so reducing corporation tax.

No idea what you are repaying it with but up to you.
Can think of quite a few people happy to not pay it off early, money too useful at that cost.
 
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Mr D said:
Bigger savings than that - take it as salary and reduces profits so reducing corporation tax.

No idea what you are repaying it with but up to you.
Can think of quite a few people happy to not pay it off early, money too useful at that cost.
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maybe I’m losing plot so I have 20k profit sitting in my account to take it out I pay 7.5% tax. So I could take £20k loan transfer it out from my business account as a salary. Then when it’s time to pay it back you you use your £20k that you would have been taxed on if you were going to take it out

loan is non taxable whatever you use it for
 
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It is called a bounce back loan for a reason. It is injecting cash in form of loan into the economy.

It doesn't really matter what it is used for -basically it encourages small businesses to borrow - and hence spend 25% of their turnover - so approximately what they lose in revenue during the lock down.

The brilliance of the scheme is:
1. it has to be paid back
2. it earns interest slightly - but above - the government cost of borrowing

So basically the lost revenue, that you would have spent, is replaced with a loan - for you to spend and pay back.

A win for the economy.

Worst case scenario fro the economy is you borrow it then pay it back in full at 1 year before you have to pay any interest, but I don't think many will do that, and if you do just because you needed cashflow to keep the business alive - that is still a win.

-- edit ---

The worst case scenario is you borrow it and go bankrupt within a year, but even then you still have (probably) pumped the money into the economy.

-- end of edit --

Personally I can't see a tax break - everything drawn from a company is taxable - but maybe I'm missing something.

-- edit --

I guess you could pump the whole of the BBL into a company pension contribution - so hence in the future you can get a 25% lump sum relief. But even then, that pension still gets invested in shares and probably a goodly proportion of UK companies.

-- end of edit ---
 
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topgear13 said:
maybe I’m losing plot so I have 20k profit sitting in my account to take it out I pay 7.5% tax. So I could take £20k loan transfer it out from my business account as a salary. Then when it’s time to pay it back you you use your £20k that you would have been taxed on if you were going to take it out

loan is non taxable whatever you use it for
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You take 20k as salary then you will pay tax on the salary personally and the business pays tax too - employer NI.

Not sure why you want to avoid 7.5% tax then pay tax on salary. But hey up to you.
Having money simply sit in your account isn't necessarily best use of capital.
 
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Mr D said:
You take 20k as salary then you will pay tax on the salary personally and the business pays tax too - employer NI.

Not sure why you want to avoid 7.5% tax then pay tax on salary. But hey up to you.
Having money simply sit in your account isn't necessarily best use of capital.
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THIS!

I read the OP's post and couldn't understand how he could see the benefit. I was going to say the same as Mr D - glad I scrolled first : )
 
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As others have said, if you take £20k out as salary, you're paying more in tax than the 7.5% you'd pay as a dividend. You might as well take it as a directors loan if you're looking for the cheapest way of taking the money out, but obviously will need a way of paying that back from your personal finances.
 
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anonuk said:
As others have said, if you take £20k out as salary, you're paying more in tax than the 7.5% you'd pay as a dividend. You might as well take it as a directors loan if you're looking for the cheapest way of taking the money out, but obviously will need a way of paying that back from your personal finances.
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It sounds like the only reason it might work for the OP is that it seems they may have only taken £2k dividend allowance out to date. (hard to be sure if that is what they mean precisely).

If they've never taken salary and aren't taking salary elsewhere then up to the tax free level as salary would work it seems. However, that assumes there weren't already profits queued up to be extracted from the business. If there were, then those would have been best taken via the salary route, so effectively the salary route is already "used" up.
 
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topgear13 said:
maybe I’m losing plot so I have 20k profit sitting in my account to take it out I pay 7.5% tax. So I could take £20k loan transfer it out from my business account as a salary. Then when it’s time to pay it back you you use your £20k that you would have been taxed on if you were going to take it out

loan is non taxable whatever you use it for
Click to expand...
If you withdraw it as salary you pay tax and NI on it.
 
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topgear13 said:
Am I missing something ?

So basically companies can get the BBL and the director can withdrawal it for salary then in 1 years time before interest due repay back the loan using the cash in company’s bank account thus saving 7.5% on dividends.

I also think it’s so open to abuse as it’s a company debt so how many are here “”today gone tomorrow “” and cannot chase a ltd co debt
Click to expand...

You are missing something here.

The BBL goes to the company - it is the company's money.

When you (the director) withdraw money from the company, it is either a loan (from company to director) which the director has to pay back to the company, salary on which the director pays PAYE & NI, or a dividend on which the director pays dividend tax.

So if the company takes a £20k BBL, and then you (the director) withdraws it, you need to decide if you (the director) are borrowing it from the company or taking it as salary.

If you are borrowing it, you have to pay the company back - in which case you haven't avoided tax, you've just had an interest free loan.

If you want to keep it, it will have to be salary or dividend, which you will pay tax on.

Whatever you choose, you (the director) are no better off than if you had withdrawn £20k of the company's profits - you're in the exact same predicament. Its either a loan repayable back to the company or its taxable.

Totally separate to that is the fact that the company will need to repay its debt to the bank at some point.

What you are right about is that companies can borrow the money and then go bust - but that is nothing new in itself...
 
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gpietersz said:
An interest free loan is a useful thing to get.

However, is this not a breach of the rules that say the money must be used for business, not personal expenditure?
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I was only addressing the tax implications as the OP's question was whether this could be a way to save tax on his salary.

It may be a breach of the rules, it may not. If his contracted salary is £20k, then is paying it allowed? Or if his business already has £20k profits in the bank, and he took that as a dividend/directors loan, is that allowed? Many variables.
 
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You are permitted to have it paid into a personal bank account. So if you do that, why would the money need to be included on any company tax returns etc? who would know??
 
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SHARPYWAN said:
You are permitted to have it paid into a personal bank account. So if you do that, why would the money need to be included on any company tax returns etc? who would know??
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Well if we're going to go down the road of falsifying accounts, tax evasion and misappropriating company funds, then the world is your oyster.

There is nothing new about directors skimming company money - You don't need a BBL for that. You could just have company income go straight into a personal account.

But that's a totally different conversation. And I'm not into that stuff myself.
 
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Data point for the many HSBC Customers on here that seem to be getting no-where.

Applied Wed 13th May very late
Request for signature Sat 16th May
Money in account Sun 17th May

Less than 4 days from application to receipt.

Very sorry for those that aren't getting such money so quickly from HSBC.

Now, just need a vaccine and life is good.
 
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So paying back the bounce back loan early, it says no charges for doing this, but are you still liable for the full 6 years worth of interest if paying back say after 2 years, or is interest only calculated and charged up to the day you pay it off?
 
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Maxwell83 said:
Well if we're going to go down the road of falsifying accounts, tax evasion and misappropriating company funds, then the world is your oyster.
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The prospect of a few bob in the offing has brought out a whole next generation of financial crime "mastermind"... Good job the consumer protections have been suspended or I'm sure in a year's time we'd have folk complaining that they shouldn't have been lent the money in the first place that they used for the 85" TV and matching his and hers zebraprint tracksuits.
 
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SHARPYWAN said:
So paying back the bounce back loan early, it says no charges for doing this, but are you still liable for the full 6 years worth of interest if paying back say after 2 years, or is interest only calculated and charged up to the day you pay it off?
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You only pay interest on the time the loan is outstanding.
 
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ville1401 said:
Using the bbl to pay salary is allowed.
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I think there are some caveats around this. Yes it is allowed in principle, but it gets much murkier if your business was paying you no salary or a minimum tax efficient salary immediately prior to receipt of the loan, and upon receiving the funds your salary goes through the roof for 3 months...

If you do that you will be undoubtedly outside the terms the loans were put in place under.

From the British Bank FAQ:

"The business must confirm to the lender that the loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes."

Propping up business income with loan to pay existing salary arrangements in place would seem wholly reasonable, paying as bumper director salary payments would pretty clearly not be...
 
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