Bounce Back Loans and O/D Directors Accounts

[cookiemonster99]

Good Afternoon,

We have 2 businesses both limited companies. I would like some advice please on the following scenarios if anyone is able to advise:

Business 1:

• Roofing Business
• Incorporated in late 2017
• 2 Full Time employees - both 50/50 Directors
• Took a £50,000 Bounce Back with Lloyds TSB when they became available
• Have been making the regular payments every month - Balance now at around £42,000
• VAT up to date never been an issue - always segregated and paid on time
• No Accounts with suppliers - always had the cashflow to order materials for both large contracts and small
• Corporation tax bill of about £20,000 coming up
• Directors loan accounts are overdrawn to the approx sum of £35,000 each according to the accountants.
• Only assets - company van approx £3,000 and a selection of hand tools - probably realise £1,000 for these if you were lucky.

We were lucky through covid that we were able to keep working through - albeit we did lose some projects as a result and this hit the cashflow hence the need for the BBL. However over the last 3-4 months contracts for good projects have been cancelled and we are running out of options. We are resorting to repairs to try and keep cash flowing through the business but this is by no means a lifeboat.

The accountant is an advocate of getting a liquidator when the time comes - however reading some posts on here there could be other ways.

Our only creditors are or will be HMRC and Lloyds which is ultimately the government anyway. Like I said no external accounts for suppliers or sub contractors wages.

Business 2:

• Car Sales business
• Incorporated in 2008
• Only 1 employee - the Director
• Has had and has been in the unsecured £25,000 overdraft with HSBC for a number of years
• Director has not taken any wages for at least three years.
• Took a Bounce Back Loan for £20,000 with HSBC when they became available.
• This reduced the Overdraft down to a couple of thousand
• Ceased trading last year - however the director has been putting monies in to cover the BBL payments. No payments have ever been missed.
• No corporation tax outstanding
• Directors account according to the accountant is in the green to the approx some of about £55,000
• No external debt whatsoever
• No VAT liability - the business was de-registered for VAT before covid
• Only debt - approx £17,000 of BBL outstanding
• No Assets whatsoever

This business was tapered out slowly when we decided to go back to the roofing in 2017. The only debt is the BBL and a small amount on the O/D.

Neither of the Bounce Backs have been used for anything naughty - with the HSBC this just reduced the Overdraft down and has mostly sat there save for the payments bringing it down. This in turn reduced the companies fees on being overdrawn the BBL is cheaper.

The roofing company - the BBL has only ever funded work or normal wages in line with whats been paid since the day of incorporation and the first project. No bonuses, speedboats or Porsches. It has only ever been used to keep the business going - like I said we have not stopped working.

We would carry on with the roofing business - it has been very good to us and we were very successful however it does not matter what we try advertising (costing money we do not have any more) or clients new or old jobs are being cancelled everywhere and they are not spending the money.

We are both faced with going back to our previous careers - so what do you advise with these two? Do I need a liquidator or can we go for the striking off and see what happens (much to the horror of the accountant)

Thanks in advance...

 

[Ray272]

Why do all the regular contributors go missing when members provide such great posts?

Plenty of accounting professionals here and some great info.

Strike off versus liquidation?
Why does this posters accoubtant seem to object?

Perhaps someone can explain the pros and cons?

I hope this poster gets some good information and UK business forum can be glad to have you as helpful members.

 

[Gyumri]

The bbl loans and the corp tax are something to think about but if the companies have fallen on hard times then there is nothing to do but write a letter to the banks and hmrc to clarify that the companies will need to cease trading (one already having done so).

They might shed a few tears and hmrc might move to eventually wind up both companies. The official receiver might get his finger out to chase down the outstanding director's loan but may equally do nothing.

If the directors want to do things by the book and have money to throw around then they can appoint an IP for a CVL- but nobody is going to give the directors any brownie points for doing so.

 

[Scalloway]

Directors loan accounts are overdrawn to the approx sum of £35,000 each according to the accountants.

This makes strike off tricky for Company 1. At the very least you need to declare this as income and pay tax on it.

Only assets - company van approx £3,000 and a selection of hand tools - probably realise £1,000 for these if you were lucky.

This combined with the overdrawn directors' loans means that there may be funds to pay a liquidator.

 

[cookiemonster99]

This makes strike off tricky for Company 1. At the very least you need to declare this as income and pay tax on it.



This combined with the overdrawn directors' loans means that there may be funds to pay a liquidator.

Thank you for the responses - Regarding your first point our personal taxes are up to date based on the earnings taken. Are you saying declare an additional £35k each on top? I don’t understand sorry.

Regarding point 2 - are we obliged to get a liquidator?

 

[UKSBD]

Thank you for the responses - Regarding your first point our personal taxes are up to date based on the earnings taken. Are you saying declare an additional £35k each on top? I don’t understand sorry.

Regarding point 2 - are we obliged to get a liquidator?

Have you paid any personal tax on the £35k?

If not, and it's written off as Directors loan, you may personally have had £35k tax free

 

[Gyumri]

I would write to hmrc as stated and declare the position with the loan and the bbl. HMRC can then decide whether they want to wind up the companies. If there is money available then I would spend it on filing final accounts and submitting the tax returns. If the loans really are loans and not disguised remuneration then the Ltds will be liable to pay a s455 charge as well as corporation tax.

These will trigger tax demands and thereafter possibly lead to the companies being wound up.

I'm not sure why you would need to declare the loans on your SARS, as they are not income.

There is no obligation to appoint a liquidator.

 

[WaveJumper]

I am sorry to state the obvious but taking advice from your accountant who understands not just your company but personal tax position surely is the way to go. Sit down with them and look at all the options open to you including the tax liability you could or could not be facing.

 

[Newchodge]

Why do all the regular contributors go missing when members provide such great posts?

Plenty of accounting professionals here and some great info.

Strike off versus liquidation?
Why does this posters accoubtant seem to object?

Perhaps someone can explain the pros and cons?

I hope this poster gets some good information and UK business forum can be glad to have you as helpful members.

I don't think many accountants hang around here on a Sunday.

 

[Lisa Thomas]

Good Afternoon,

We have 2 businesses both limited companies. I would like some advice please on the following scenarios if anyone is able to advise:

Business 1:

• Roofing Business
• Incorporated in late 2017
• 2 Full Time employees - both 50/50 Directors
• Took a £50,000 Bounce Back with Lloyds TSB when they became available
• Have been making the regular payments every month - Balance now at around £42,000
• VAT up to date never been an issue - always segregated and paid on time
• No Accounts with suppliers - always had the cashflow to order materials for both large contracts and small
• Corporation tax bill of about £20,000 coming up
• Directors loan accounts are overdrawn to the approx sum of £35,000 each according to the accountants.
• Only assets - company van approx £3,000 and a selection of hand tools - probably realise £1,000 for these if you were lucky.

We were lucky through covid that we were able to keep working through - albeit we did lose some projects as a result and this hit the cashflow hence the need for the BBL. However over the last 3-4 months contracts for good projects have been cancelled and we are running out of options. We are resorting to repairs to try and keep cash flowing through the business but this is by no means a lifeboat.

The accountant is an advocate of getting a liquidator when the time comes - however reading some posts on here there could be other ways.

Our only creditors are or will be HMRC and Lloyds which is ultimately the government anyway. Like I said no external accounts for suppliers or sub contractors wages.

Business 2:

• Car Sales business
• Incorporated in 2008
• Only 1 employee - the Director
• Has had and has been in the unsecured £25,000 overdraft with HSBC for a number of years
• Director has not taken any wages for at least three years.
• Took a Bounce Back Loan for £20,000 with HSBC when they became available.
• This reduced the Overdraft down to a couple of thousand
• Ceased trading last year - however the director has been putting monies in to cover the BBL payments. No payments have ever been missed.
• No corporation tax outstanding
• Directors account according to the accountant is in the green to the approx some of about £55,000
• No external debt whatsoever
• No VAT liability - the business was de-registered for VAT before covid
• Only debt - approx £17,000 of BBL outstanding
• No Assets whatsoever

This business was tapered out slowly when we decided to go back to the roofing in 2017. The only debt is the BBL and a small amount on the O/D.

Neither of the Bounce Backs have been used for anything naughty - with the HSBC this just reduced the Overdraft down and has mostly sat there save for the payments bringing it down. This in turn reduced the companies fees on being overdrawn the BBL is cheaper.

The roofing company - the BBL has only ever funded work or normal wages in line with whats been paid since the day of incorporation and the first project. No bonuses, speedboats or Porsches. It has only ever been used to keep the business going - like I said we have not stopped working.

We would carry on with the roofing business - it has been very good to us and we were very successful however it does not matter what we try advertising (costing money we do not have any more) or clients new or old jobs are being cancelled everywhere and they are not spending the money.

We are both faced with going back to our previous careers - so what do you advise with these two? Do I need a liquidator or can we go for the striking off and see what happens (much to the horror of the accountant)

Thanks in advance...

Business one - Liquidate it, pay the DLAs back. A deal who pay in instalments might be possible with the liquidator, if you go via a voluntary liquidation (CVL) instead of a compulsory winding up via the courts.

A phoenix liquidation or a CVA might be worth exploring if there is a will to continue trading.

Business two - might be best to strike it off/abandon it to be struck off.

Suggest you have a proper chat with a licensed IP to explore options more fully.

 

[numbersrule]

B1 has CT Bill of £20k coming up which means a reasonable net profit last year.
On this basis, how are your personal finances?
It seems to me that you would be expected to repay the O/D DL. My understanding is that a company cannot be struck off or dissolved whilst a BBLS is owed. So regarding a CVL, the bank is unlikely to agree to the CVL unless the O/D DL is first repaid.

On a separate point, is B1 likely to make a loss this year? Sounds like it. So my understanding is you could make a claim to reduce last year's CT Bill by off-setting this year's losses against last year's income and gains. That might take a chunk out of the B1 CT Bill.

The combined effect of these two points would mean that in reality B1's Liabilities could be reduced somewhat (my guesstimate Lloyds TSB = £42k minus £35k DL minus £3k minus £1k sales leaves only £3k. Cookiemonster99 can you clarify this year's B1 losses? How far will that bring down the £20k CT?

B2 owes it's Director £55k. As you are contemplating CVL presumably this is kind of already 'written off'.
Which leaves approx. £20k owed to HSBC BBLS & O/D. This means there is only one Creditor to consider the position for a CVL. ( as above, B2 cannot be dissolved / struck off with BBLS owed, I think - please do ask your IP ). So would the lonely Turkey vote for Xmas? Or would it be an Arrangement to Pay?

PS I am just a Ground Investigator so you must consult a Professional Expert.