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Bounce back loan interest

How many years should I charge interest to the P&L ?

Didn't find your answer?

Thought I'd stick my neck out to ask what the general consensus is on charging interest on bounce back loans to the P&L.

I am minded to charge the total interest for the 5 years over the full 6 years of the loan (assuming it is not repaid early) on a reducing balance/rule of 78 basis, even though none is paid in the first year.

Would be interested to see what anyone else thinks please.

Replies (7)

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By Mike Bath
14th Sep 2020 16:59

On a strict basis I think that's a fair approach to take. The lender gets a return of £X over a 6 year period, so it's reasonable to allocate the interest payable over the full 6 years of the facility provided. Whether or not you get to a materially different answer by taking all of the interest in years 2-6 is a different question.

Thanks (1)
By Paul Crowley
14th Sep 2020 17:06

Materiality and accounts different to tax means I will probably ignore on most bounce back
CBILS, decide when I do the accounts

Thanks (3)
By lionofludesch
14th Sep 2020 20:57

I think the OP is probably right.

Whether it's material is a value judgement.

Thanks (1)
By Paul Crowley
14th Sep 2020 21:45

Add to the mix true position which is that interest and fees for the first year are a grant.
If interest wanted in first year then double entry is grant

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Replying to Paul Crowley:
By petestar1969
16th Sep 2020 10:12

Agreed, this came up in another thread somewhere. Calculate the interest over the full term of the loan but as there are no repayments in the first year, the interest calculated would also be a government grant.

Thanks (1)
blue sheep
15th Sep 2020 09:17

probably not material either way but there is interest in Yr1 however it is being paid by Gov not your client, so I fail to see how you could spread over 6 years, IMO the correct treatment is nothing in yr1 with the rest spread over yrs 2-6.

If it was repaid at the end of Yr 2 for example you might have already claimed too much interest.

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By zahzah
16th Sep 2020 13:57

My understanding is that the interest is reducing with the balance. Great calculator online which calculates the interest over the term and will adjust of lump sums are paid off.

I have also been allowing the interest as an expense on the P&L and double entry to Grant income as the government is paying the interest for the first 12 months.

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