BBL – should we accrue interest?

BBL - what to accrue and what balances to show

Didn't find your answer?

A micro company secured 20K BBL in May 2020.  The intention is to start repayments after 18 months and extend the loan to 10 years.    The interest rate is 2.5%, with Government covering first year’s interest.  Barclays loan calculator shows total loan amount £22,271 and interest £226.85 p.m.

Should any interest be shown in the company’s accounts to 31.12.2020?   Or can / should the company shown interest in accounts only when paid?

Thanks...

Replies (10)

Please login or register to join the discussion.

avatar
By Paul Crowley
07th Apr 2021 11:26

Interest looks wrong
£20K at 2.5% equals £500

Even so what would be the other half of the entry for loan interest not payable?

Thanks (0)
Replying to Paul Crowley:
Flag of the Soviet Union
By thevaliant
07th Apr 2021 11:53

Government grants received.

Which, certainly, every update course I've been on since last year has been insisting it should be shown as.

Of course, "Immaterial" has been the unofficial answer every time.

Thanks (1)
Replying to thevaliant:
avatar
By paul.benny
07th Apr 2021 13:02

By that logic, companies should also be reporting interest at, say 10% (being the market rate for such borrowing) with the difference being accounted for as a government grant.

Thanks (0)
Replying to paul.benny:
Flag of the Soviet Union
By thevaliant
07th Apr 2021 17:00

No. They should be reporting the interest at the commercial rate available; and again this came up.

The long and short of it was that, for the FRS102 type situations were loans were advanced not at market rates, was that Covid19 has made this new rate of 2.5% THE MARKET RATE.

So, no; I think you *should* be accounting for the 2.5% interest you don't pay, against the 2.5% government grant you don't receive.
But immaterial, in all but the most bizarre of situations meant that, in reality, no one was actually bothering (certainly on my Zoom 'CPD' everyone confessed they knew they should do it, but no one actually was).

I'm not the tax expert, but if you did do the above, is the tax treatment different for the notional debit and credit (one is a non-trade loan relationship debit, and the other is a trading credit? Dunno)?

Thanks (0)
Replying to thevaliant:
blue sheep
By NH
07th Apr 2021 20:01

I believe there is a difference of opinion on this between icaew and acca, either way as you say it's all a waste of time and immaterial

Thanks (0)
Replying to thevaliant:
avatar
By paul.benny
08th Apr 2021 14:05

thevaliant wrote:

.. no; I think you *should* be accounting for the 2.5% interest you don't pay, against the 2.5% government grant you don't receive...

I disagree.

FRS102 refers to free business support services provided by government. These require narrative disclosure only. I would bracket the interest subsidy with this type of support.

The argument that 2.5% is the market rate also says that 0% is the market rate for the first year. There is no basis for accounting for interest not paid and grants not received - but if you do, then then you also have to gross up the subsidised interest rate to a market rate.

Thanks (0)
Avatar
By I'msorryIhaven'taclue
07th Apr 2021 12:07

Could £226.85 be per annum interest (not rule of 78, but on a straight line basis)?

Rationale: £226.85 x 10 yrs = circa £2,271

Thanks (0)
Replying to I'msorryIhaven'taclue:
avatar
By newman
07th Apr 2021 14:01

I'msorryIhaven'taclue wrote:

Could £226.85 be per annum interest (not rule of 78, but on a straight line basis)?

Rationale: £226.85 x 10 yrs = circa £2,271

Yes, it is interest. Thanks for pointing it out.

Thanks (0)
Replying to newman:
avatar
By newman
07th Apr 2021 14:03

newman wrote:

I'msorryIhaven'taclue wrote:

Could £226.85 be per annum interest (not rule of 78, but on a straight line basis)?

Rationale: £226.85 x 10 yrs = circa £2,271

Yes, it is repayments. Thanks for pointing it out.

Thanks (0)
Slim
By Slim
07th Apr 2021 20:22

Is it material?

Thanks (0)