Many of our limited company (‘Ltd Co’) clients have taken bounce back loans (BBLs), which have been mainly used for personal use (i.e., to keep themselves afloat) rather than for their businesses. This has resulted in their director’s loan accounts (DLAs) being largely overdrawn along with their section 455 charges. Many of these Ltd Co clients’ turnovers have been reduced due to Covid-19, thus the combination of their corporation tax, section 455 charges and self-assessment (SA) liabilities seem too high for them to cover anytime soon. Can I show the BBL as a personal loan against the directors and therefore reduce the section 455 charge and their self-assessment liability? The basis for this treatment would be that whilst the Ltd Co will not receive relief on the interest, the charge to interest is nominal anyway and future monthly repayments for BBL will be set off against their DLA. With this trickle effect on the overdrawn DLA and increased work in future the Ltd Co could cover the repayments by paying them extra dividends. I am not sure whether this would be a correct treatment though as the BBL would be in the company’s name. Could HMRC treat this as a beneficial loan (even though it is a loan to the Company) in the event of a tax enquiry?
Arthur Weller replies:
If you look at the bounce back legislation enacted, you can see that the BBL scheme has been operated by the British Business Bank plc on behalf of the Secretary of State. If you also look at the British Business Bank’s Coronavirus business interruption loan schemes for small businesses, you will see 32 FAQ's, and in numbers 15 and 23 it states quite clearly that the loan is a business loan, and can only be used to provide an economic benefit to the business.