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Bounce Back Loan Interest

Tax relief on sole traders

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Not really relevant to ye March 2021

But the next accounts will have have interest payments, and my guess is that some tax payers may expect to get tax relief.

Do not think many will qualify.

Some of those accounts will be being prepared now

 

Replies (24)

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RLI
By lionofludesch
31st Jul 2021 21:03

Care to share your thoughts?

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Replying to lionofludesch:
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By Paul Crowley
31st Jul 2021 22:33

You know them already
Prepare a balance sheet and disallow based on the balance drawn from the business.

Not really intended as a question, more a reminder that this starts now with a dead easy title that the non panellists can easily search using logical search words

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By Tax Dragon
01st Aug 2021 06:39

What my right honourable colleague is thinking is that it's not just director-shareholders that might have taken BBL money out of the business. Self-employed folk might have done the same.

BIK/s455 etc don't apply to s/e. W&E does. Interest paid on a loan used for non-business purposes is not paid wholly or exclusively (or indeed at all) for the purposes of the business.

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Replying to Tax Dragon:
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By Tax Dragon
01st Aug 2021 06:43

An advantage of preparing balance sheets is that you may be able to identify an allowable portion of the interest as discussed in BIM45700, BIM45705 etc.

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Replying to Tax Dragon:
RLI
By lionofludesch
01st Aug 2021 07:00

An advantage of not preparing balance sheets is that any disallowable proportion of interest is difficult to establish.

I dunno - I never had any unincorporated businesses with BBLs so it's hard to get a grasp of the numbers.

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Replying to lionofludesch:
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By Tax Dragon
01st Aug 2021 07:30

Yeah, so as a meticulous accountant you might end up having to disallow the whole lot.

Burden of proof here is on the taxpayer, who may have to demonstrate an allowable element. Not having a balance sheet could make for a soft target.

Anyway, I feel like I've explained Paul's point now. May I leave?

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Replying to Tax Dragon:
RLI
By lionofludesch
01st Aug 2021 08:13

Tax Dragon wrote:

Yeah, so as a meticulous accountant you might end up having to disallow the whole lot.

There's the weakness in your argument. I'm not a meticulous accountant - nor even an accountant at all.

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Replying to lionofludesch:
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By Tax Dragon
01st Aug 2021 08:56

I thought I'd made it plain that l wasn't arguing. I therefore don't have an argument. There are therefore no weaknesses in my argument.

(Though every member of the empty set is of course a heffalump.)

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Replying to lionofludesch:
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By Paul Crowley
01st Aug 2021 12:21

Lion
You may have stopped trading but you still know the rules
Happy Yorkshire Day

On small traders I rarely bother with submitting a balance sheet, but the BBL now requires it to be prepared.
The problem with bank account is that most of mine do not have a business bank account. Credits come from other non business income, wife's employment, rent, child allowance, selling the car and Ebay sales.
I would even purport that a BBL mixed in a non business bank account could be deemed to be drawn in its entirety.

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Replying to Paul Crowley:
RLI
By lionofludesch
01st Aug 2021 13:02

Paul Crowley wrote:

Lion
I would even purport that a BBL mixed in a non business bank account could be deemed to be drawn in its entirety.

Interesting view but I would suggest that, during an enquiry, HMRC might assert that it is a business account. I would consider it a business account too. It's where all the business transactions are.

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Replying to lionofludesch:
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By Tax Dragon
01st Aug 2021 16:29

lionofludesch wrote:

It's where all the business transactions are.

It's where all the business income is - and where all the private expenses are. Not a happy combination come an enquiry.

Soft target, as a previous respondent put it above.

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Replying to Tax Dragon:
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By lionofludesch
01st Aug 2021 16:43

Tax Dragon wrote:

lionofludesch wrote:

It's where all the business transactions are.

It's where all the business income is - and where all the private expenses are. Not a happy combination come an enquiry.

Soft target, as a previous respondent put it above.

Honestly, I've never found it to be a problem.

What problems would there be ? The income's traceable. The business payments are traceable. HMRC have only a passing interest in the private stuff.

HMRC are more pragmatic than you imply.

Thanks (1)
Replying to Tax Dragon:
Ioana
By Ioana B.
01st Aug 2021 08:33

Imagine you have to prepare a balance sheet for a self employed client who 1.operates using his personal account 2.does not have any previous accounts done 3.does not pay for full accounts-he just needs his self assessment performed.

I wouldn’t prepare full accounts to determine the disallowed interest unless I charge for the service.

Otherwise ,I think most of us will use their judgement and make a decision based on estimations.

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Replying to Ioana B.:
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By Tax Dragon
01st Aug 2021 08:59

So long as you are aware of the issue and make sensible estimates. Patently, paying a BBL into your business-[***]-personal account renders you at risk of loss of tax relief for interest paid.

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Replying to Tax Dragon:
RLI
By lionofludesch
01st Aug 2021 16:49

Tax Dragon wrote:

So long as you are aware of the issue and make sensible estimates. Patently, paying a BBL into your business-[***]-personal account renders you at risk of loss of tax relief for interest paid.

Bit of Latin there, caught up in the swear filter ....

I just don't agree with you about the interest - though it's impossible to come to any sort of conclusion without knowing whether the fella borrowed £5 or £50k and what his capital account balance was at the time of the loan.

More than likely, the scenario in my head is different to the scenario in yours.

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Replying to lionofludesch:
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By Tax Dragon
01st Aug 2021 17:10

I didn't have a scenario in mind. Your first reply indicated you didn't know what Paul was on about. I have sought to clarify - and to assist in understanding. (And I think I succeeded, as you seem to have gone from asking "do what?" to disagreeing with Paul's proposition.)

My intention fulfilled, I don't know why I'm still here. If you want to know what I think is likely in reality, then I think HMRC generally is pragmatic so long as the accountant also plays fair. Hence the comment above about using good estimates if you have to. Your implied approach (which appears to be to ignore the issue) is not, imho, befitting of a professional accountant.

But yeah, if the interest is only £5, it's not worth even thinking about. Obviously.

Thanks (1)
Replying to Ioana B.:
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By Paul Crowley
01st Aug 2021 12:32

Tax dragon does tax not accounts
She told me off for not wanting to do the whole 9 yards on small traders in a prior post.
This OP relates to a chat we had before AWeb suspended my ability to post.
Aweb operates on the TwitBook rules, looking not to offend TwitBook users from the USA.

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Replying to Paul Crowley:
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By Hugo Fair
01st Aug 2021 14:15

Ah, now I understand TD's reference to extra-terrestrials (in a different thread) ... welcome back, and keep fighting the twits and twonks.

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RLI
By lionofludesch
01st Aug 2021 08:42

We're assuming that most traders will overdraw their capital accounts when they have a BBL.

I'm not convinced that's the case.

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Replying to lionofludesch:
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By Tax Dragon
01st Aug 2021 09:45

You think Paul was wrong to raise an issue because it doesn't apply for the majority (or, at least, you're not convinced it does)?

What about the minority? Don't they have the right to pay the correct tax too?

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Replying to Tax Dragon:
RLI
By lionofludesch
01st Aug 2021 16:55

Paul's perfectly within his rights to raise an issue.

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By legerman
01st Aug 2021 10:38

Out of 4 I know of, two will qualify although one is going to cease trading before the BBL kicks in, due to lack of trade (sole trader)

One withdrew virtually the lot so I will allow interest on the small residue. They have started paying it back though

Other went bust but spent legitimately. (Ltd)

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Replying to legerman:
RLI
By lionofludesch
01st Aug 2021 10:47

legerman wrote:

Out of 4 I know of, two will qualify although one is going to cease trading before the BBL kicks in, due to lack of trade (sole trader)

One withdrew virtually the lot so I will allow interest on the small residue. They have started paying it back though

The test is not whether he withdrew the money. Rather was his capital account overdrawn?

Thanks (1)
Replying to lionofludesch:
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By legerman
01st Aug 2021 12:40

lionofludesch wrote:

legerman wrote:

Out of 4 I know of, two will qualify although one is going to cease trading before the BBL kicks in, due to lack of trade (sole trader)

One withdrew virtually the lot so I will allow interest on the small residue. They have started paying it back though

The test is not whether he withdrew the money. Rather was his capital account overdrawn?

I take your point, but yes, it was.

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