Many of our Ltd Co clients have taken Bounce Back Loans(BBL) which have been mainly used for personal use (to keep themselves afloat) rather than for their businesses. This has resulted in their director’s loan accounts being largely overdrawn along with their section 455 charges. Many of these Ltd Co clients’ turnover have been reduced due to Covid-19, thus the combination of their corporation tax, section 455 charges and self-assessment liabilities seem too high for them to cover anytime soon. A friend of mine in the practice has suggested we show the BBL as a personal loan against the Directors and therefore reduce the S455 charge and their SA liability. His basis is that whilst the 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 his Director's Loan Account. With this trickle effect on the overdrawn Director's Loan Account and increased work in future the Co could cover the repayments by paying him extra dividends.
I am not sure whether this would be a correct treatment though as the BLL would be in Co name. Can he treat this as a beneficial loan (even though it is a loan to the Co) in the event of a tax inquiry? I wanted to know what other practitioners thoughts are if their clients find themselves in such a situation and how they would treat such transaction. My client has made it clear that he does not have the funds to pay now to clear all these liabilities if we go with the current situation he finds himself in. I appreciate he can negotiate with HMRC to pay in instalments which is one option.