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Bounce back loan claimed 100% turnover

Bounce back loan claimed 100% turnover

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A client has claimed a bounce back loan at 100% of turnover rather than the maximum allowed %.

This was picked up on completion of the last VAT return and the client was advised to contact the bank regarding repayment.

The records will be in for the next VAT Return shortly and, after speaking to the client, the bbl overpayment has not been resolved. The funds are fully available  to repay but the the client has been advised to keep hold of it by 'everyone he knows who has done the same'........not even 'the man in the pub'.

I fully expect that the client will repay the loan in full before his repayments become due and he just wants to keep hold of it for some reason. 

what are my obligations?

unfortunately, the loan will have been outstanding at the end of his accounting year (Ltd Co FRS105). Is a disclosure required even if he pays it all back ?

 

 

 

 

Replies (33)

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By SXGuy
12th Mar 2021 05:58

Why anaon?

What does vat have to do with bbl?

Its not an overpayment its a deliberate act to receive more than was intended.

What disclosure are you referring to? It's not a loan to him personally from the company...

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My photo
By Matrix
12th Mar 2021 06:53

Are you asking him to repay the loan to the company or to the bank? Sorry it was not clear.

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Stepurhan
By stepurhan
12th Mar 2021 07:25

I am assuming that it was just that you noticed the loan coming in as part of preparing the VAT return. Not that it is a VAT item itself.

It is technically fraud, but I'm not sure you have a reporting obligation. If the entire amount is paid back in full, then they haven't necessarily received a benefit. Hopefully David Winch will respond at some point, but it seems to me that if there is no criminal proceeds at all, there is no money laundering offence. If they receive interest on money they should not have had, that could change things.

I'm not a big fan of anonymous, but I can see some justification for it in this case. I still think you didn't really need it, but it is a lot more debatable than the outright abuse we often see, so I don't have an issue with you using it.

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Replying to stepurhan:
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By Wanderer
12th Mar 2021 07:49

Quote:

It is technically fraud, but I'm not sure you have a reporting obligation. If the entire amount is paid back in full, then they haven't necessarily received a benefit. Hopefully David Winch will respond at some point, but it seems to me that if there is no criminal proceeds at all, there is no money laundering offence.

Isn't that like arguing that if somebody steals something but is found out and has to give it back then there is no crime?
If it is fraud then at the point the funds are received there are proceeds of crime.
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Replying to Wanderer:
Stepurhan
By stepurhan
12th Mar 2021 08:27

Quote:
Isn't that like arguing that if somebody steals something but is found out and has to give it back then there is no crime?
If it is fraud then at the point the funds are received there are proceeds of crime.
I see your argument, but it is not quite analogous.

The money was borrowed on the understanding it would be paid back, so it wasn't stolen. If the money is paid back, it is paid back based on that understanding, so it is not being returned because the person has been "found out".

So the question is, does the fact that the bank would not have lent that amount if they knew the true position mean that it immediately becomes proceeds of crime. Or does the fact that the person has agreed to pay it back in full and proceeds to do so negate that.

Again, I think it would be good to have David Winch to weigh in on this. As it is his area of expertise he should be able to say which of us is right.

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Replying to stepurhan:
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By Wanderer
12th Mar 2021 08:55

You have misunderstood. Money doesn't need to be stolen. Your situation is no different from mortgage fraud when people lie on the applications to borrow more than the lender would agree to had they known the truth. It is irrelevant that they intend to pay it back.

You said below:-

Quote:
If they have actually obtained any financial benefit from the loan (apart from simply having the cash available)
Having the cash available is a benefit and these (if the other conditions are met) are proceeds of crime.
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Replying to Wanderer:
Stepurhan
By stepurhan
12th Mar 2021 09:52

Fair point. I concede to your view.

I think too much trying to help clients who are genuinely struggling to stay afloat has clouded my view. There are times when we, as accountants, have to draw the line even if that puts our client the wrong side of it.

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Psycho
By Wilson Philips
12th Mar 2021 08:46

It would appear that he has been deliberately dishonest with the bank in order to obtain a financial advantage. That advantage might amount to no more than additional interest on funds on deposit, or reduced overdraft charges, but there’s no de minimis so I’d say there is a reporting obligation.

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Replying to Wilson Philips:
Stepurhan
By stepurhan
12th Mar 2021 08:33

I only alluded to this in my response, but I quite agree. If they have actually obtained any financial benefit from the loan (apart from simply having the cash available) then all bets are off.

The question is have they. If it is just sitting in a zero-interest business account and they would not have gone overdrawn without it, are they still in trouble?

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Replying to stepurhan:
Giraffe
By Luke
12th Mar 2021 13:50

Surely they have obtained the financial benefit of the state aid paying the interest on the loan for the first year?

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Replying to Luke:
Stepurhan
By stepurhan
12th Mar 2021 14:22

Good point.

I have conceded I was wrong in general anyway, but you are right that is a clear benefit.

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By Duggimon
12th Mar 2021 08:43

I know it's been done to death so many times on here but really, why for the love of god don't the bank even look at the accounts? Just two minutes skimming the accounts before handing out thousands of pounds.

It's insane.

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Replying to Duggimon:
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By memyself-eye
12th Mar 2021 08:53

The bank doesn't look at the numbers because they are not on the hook for the loan.

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Replying to Duggimon:
By kenny achampong
12th Mar 2021 08:56

Completely agree. It's like the government ordered the banks to open their doors/vaults and invite everybody in to help themselves to anything up to £50K, and that the government will repay them if anybody doesn't give it back. I really do wonder how much will have to get written off in the next 10 years. Madness.

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Replying to kenny achampong:
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By sanjay100
12th Mar 2021 22:17

Its a sorry state when AAT is lobbying the government to write off the BBL loans - the whole situation is farcical with this free for all.

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Replying to Duggimon:
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By Open all hours
12th Mar 2021 16:34

Our MP is on the relevant finance committee. We had a zoom meeting with him just before final details for BBL were confirmed. He suggested turnover be taken as calendar year 2019. We pleaded with him to make it the last figures the client had signed for - whatever that year end was. Plea fell on deaf ears but they were under tremendous time pressure.

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By Crouchy
12th Mar 2021 09:01

have had a similar position with a new client, who claimed £50k when turnover is only about £20k!!

to make matters worse they then took the money out of their company to pay off their mortgage and are now facing a massive tax bill as a result of their massively overdrawn directors loan

SAR submitted, soon to be ex client!

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By Roland195
12th Mar 2021 09:47

From the moment BB loans were announced, I knew that this would be the impact on our profession- countless hours wasted on pointless AML reports, talking ourselves in/out of disengaging otherwise good clients and general rending of our underwear over something that could have been prevented by the most cursory checks beforehand. Will the Treasury back our fees for this?

Putting aside the legal position & ethical considerations, can you genuinely not understand why the client might prefer to keep hold of the cash? We still face a massive period of uncertainty where the money may be needed to stay afloat particularly when grants & furlough stop.

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By sanjay100
12th Mar 2021 09:56

I had someone approach me to become their accountant but when they told me they took a 50K loan on turnover around 90K. I declined even though he was desperate to engage me and willing to pay whatever.

Its sad the government didn't asks some basic questions before giving the money away which many have no intention of paying back. Nice to have a income of 50K though some have applied multiple times. Its no wonder many directors are not complaining about the getting £580 on the Furlough scheme

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By graydjames
12th Mar 2021 10:11

After taking advice, I was forced to lose two very long standing (related) clients over this very issue. Deeply annoying, when very simple checks by the bank would have stopped it. Speaking to others, a not uncommon view was that I could have let it go - mainly on the basis that they were going to repay the loans anyway, so what did it matter! Many seem to be of the same mind here. I don't agree with that, but it did give me pause.

Another regulated firm was happy to take them on. A very upsetting episode.

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A Putey FACA
By Arthur Putey
12th Mar 2021 10:54

Er, you don't "claim 100% of turnover" accidentally unless the bank's application validation was woefully inadequate. The loan application asks you what your turnover was in the previous year and you separately have to enter the amount you want to borrow.

So either the applicant overstated turnover, or its the bank's fault.

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Replying to Arthur Putey:
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By Roland195
12th Mar 2021 11:06

Under the first incarnation of BB loans, I seem to recall the definition of turnover being a bit woolier than currently - businesses in their first year were eligible based on expected turnover etc.

It would seem far fetched to think that everyone who claimed £50k on a £20k Turnover made the same mistake with their decimal place though.

You would think it would be this evidence on the form used by the banks to allege fraud but unless HMG refuses to stump up, I can't see them being interested.

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Replying to Arthur Putey:
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By graydjames
12th Mar 2021 12:29

Who said that it was accidental?

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Replying to graydjames:
A Putey FACA
By Arthur Putey
12th Mar 2021 12:35

I think I implied that it would be difficult to do so accidentally

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By garforth
12th Mar 2021 11:19

I had a problem with a start up client who has prepared a budget showing turnover that is impossible to achieve. 1000 units from ZYX in year 1. without the capacity to produce anymore than 250 a year and no contact with ZYX.
I felt that he was knowingly making false statements to obtain a loan.
Local regulated firm took him on. He rang me and said that he was sorry that we could not work together and other firm explained that he was not doing anything wrong as cash flows were only best guess. I wonder how other people deal with cash flows and budgets as I am rapidly losing clients due to what I see as fraud and other accountants see as fine.

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Replying to garforth:
A Putey FACA
By Arthur Putey
12th Mar 2021 12:41

Might you have a higher % of dodgy clients than average, perhaps due to being "unregulated"?

I doubt it, so what are you seeing that the other accountants are not?

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Replying to garforth:
A Putey FACA
By Arthur Putey
12th Mar 2021 12:44

The nail on the head there is that bounceback loans were supposed to be to help existing businesses, er, bounce back. Not throw money at startups.

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Replying to Arthur Putey:
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By garforth
12th Mar 2021 13:50

I am ACCA so regulated. I bought into small practice when Chartered owner retired. The fabricated cash flow was not for a bounce back loan. Apart from this issue I have had to get rid of clients for both CJRS and SEIIS claims. The clients have no difficulty in finding another accountant.

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Replying to garforth:
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By Roland195
12th Mar 2021 14:04

If you are "rapidly losing clients" over issues with BB loans, CJRS, SEISS then either you have an unusually delinquent client base or you have an over developed sense of professional ethics.

What led you to undertake the exercise to prove the client's cashflow forecast was not feasible?

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Replying to garforth:
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By sanjay100
12th Mar 2021 22:25

Unfortunately, I have lost faith in human nature long time ago. If there is free money going most will take without hesitation. Some dodgy accountants are encouraging their clients to take the money so obviously they can charge them more in fees since the client is cash rich and won't mind so much since ultimately the company will get liquidated and they would have spent it on their dream house and car.

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By Matrix
12th Mar 2021 22:47

If the company is liquidated then can they go after the Director’s personal assets?

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David Winch
By David Winch
12th Mar 2021 16:05

It seems to me that the situation is that either the client knew when applying that he was borrowing more than permitted, or he now knows that he has borrowed more than permitted - and has taken no steps to sort that out with the lender.
So the loan monies are proceeds of crime, dishonestly obtained / retained.
In terms of could he be prosecuted for that (i.e. as a matter of law, not WOULD he be prosecuted as a matter of practicalities), I would say yes.
Looking at Fraud Act 2006, s2, he exposes the lender to risk of loss. He also makes a temporary "gain", see s5.
So, for me, a Suspicious Activity Report is required here.
David

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Replying to davidwinch:
Stepurhan
By stepurhan
12th Mar 2021 16:11

Thanks David. I always appreciate your clear and informative posts on this subject.

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