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Does my client need to be reported

Client took 50K bounceback loan but business not adversely affected by Covid-19

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I have a client who is a IT contractor (Ltd) took out the full 50K bounceback loan.  Turnover is around 200K

However, my client did not stop working and the pandemic did not affect his business therefore technically not eligible for the loan.  Though I am so sure many businessess have missed this point as they have just taken the loan without any thought.

He is planning to use the 50K to invest in a company he has setup overseas.  UK company would charge interest on the loan.   The Overseas and UK Company business activities are related

Would this need to be reported to SOCA ?

Replies (37)

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By williams lester accountants
24th Nov 2020 11:03

Why not, gives you something to do with your time.

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Replying to williams lester accountants:
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By taxwizard
24th Nov 2020 13:13

Not sure the rationale over this flippant remark

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By Justin Bryant
24th Nov 2020 11:16

From what I've heard most people have used it for buying property (hence the recent mini property boom due to that and SDLT holiday), a flashy car or outright fraud, so at least he's using it for a genuine business purpose.

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Replying to Justin Bryant:
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By taxwizard
24th Nov 2020 13:15

Yes I am aware but he also intends to pay the money back in full which doesn't seem the case with some businesses as they probably see it as remuneration for not getting their share in the government's greatest giveaway ever.

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By memyself-eye
24th Nov 2020 11:35

I put mine on the stock market - airlines, retail, pub groups etc....

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blue sheep
By NH
24th Nov 2020 13:01

your client and almost every other business I know.....

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By Adam12345
24th Nov 2020 13:18

1,397,475 BBLs have been approved at an average of over £30,000.

That's about pretty much 1 per every 5o individuals in the UK. Bearing in mind 21.3% of the population are under the age of 18 and 22.5% are over 60, that probably equates to 1 in 30 if you only consider those of working age. Systemic fraud is clearly occurring with the BBLs.

In 18 months time the press headlines will be '75% of BBLs have defaulted'. Surely anyone with a hole up their **** can see what is happening here (except the chancellor of course).

This will cause inflation to rise significantly if unchecked.

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Replying to Adam12345:
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By Justin Bryant
24th Nov 2020 13:23

Yes, and when I was pointing all that here out months ago people here thought I was exaggerating or just being obtuse or whatever.
https://www.accountingweb.co.uk/tax/hmrc-policy/bounce-back-loan-scheme-...

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Replying to Justin Bryant:
Stepurhan
By stepurhan
25th Nov 2020 07:05

Justin Bryant wrote:

Yes, and when I was pointing all that here out months ago people here thought I was exaggerating or just being obtuse or whatever.
https://www.accountingweb.co.uk/tax/hmrc-policy/bounce-back-loan-scheme-...

You keep saying this and, as anyone that actually reads the comments on the thread you linked to, it keeps not being true.

At most, some people said it was better to risk fraud to get money out to businesses that need it.

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Replying to stepurhan:
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By taxwizard
25th Nov 2020 13:18

All was require some basic checks then this would have minimise the risk of fraud. Its foolish giving a any loan to a one man band that was setup 5 minutes ago.

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Replying to Adam12345:
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By taxwizard
24th Nov 2020 13:30

These Ltd businesses treat it a a grant and not a loan as some are angry that self employed got the SEISS grants when their business was unaffected by the Pandemic and most directors didn't get much at all compared to Self Employed.

I think there is no point in reporting a company where the rules are not clearly defined on the bounce back loan and that there is hundred of thousands more serious cases of business taking advantage of the government's generosity

The whole situation stinks but I am struggling to determine whats right and whats clearly wrong. Most of my clients have taken the loan innocently without knowing the ins and out of the loan criteria.

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Replying to taxwizard:
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By Paul Crowley
24th Nov 2020 14:17

But they did know that it is a loan and loans are repayable.
Just like the VAT, still needs to be paid
And the July Self assessment instalment

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Replying to Paul Crowley:
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By taxwizard
24th Nov 2020 16:13

Some businesses do not intend to repay the loan and will just liquidate after spending the money and just start again which will be quite easy for small businesses.

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Replying to taxwizard:
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By Adam12345
24th Nov 2020 14:29

There are some clear lines in the sand that can be found on the British Business Bank's website such as 25% of turnover (a lot of businesses applying for more than £21,250 even though they are not VAT registered (some may be exempt from VAT of course)). Surely this should stick out like a shore thumb.

Must have been carrying on business as at 01/03/2020.
Only one BBL per 'group' of companies.
More than 50% of the income has to be derived from trading activities.
They will use the loan only to provide economic benefit to the business and not for personal use (if a sole trader the line here is blurred but not if a limited company).

The above are fairly black and white IMO.

https://www.british-business-bank.co.uk/ourpartners/coronavirus-business...

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Replying to Adam12345:
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By taxwizard
24th Nov 2020 16:05

Yes accountants would be aware but clients are not aware of the criteria nor understand the concept of economic benefit. Loan should be taken where the business has been adversely affected by Covid-19 but that is rather vague. I do not know any Subcontractors that have not taken the SEISS grant even though they have been working all way through. The simply think they are entitled to.

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Replying to taxwizard:
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By petestar1969
25th Nov 2020 10:02

taxwizard wrote:

These Ltd businesses treat it a a grant and not a loan as some are angry that self employed got the SEISS grants when their business was unaffected by the Pandemic and most directors didn't get much at all compared to Self Employed.

I think there is no point in reporting a company where the rules are not clearly defined on the bounce back loan and that there is hundred of thousands more serious cases of business taking advantage of the government's generosity

The whole situation stinks but I am struggling to determine what's right and what's clearly wrong. Most of my clients have taken the loan innocently without knowing the ins and out of the loan criteria.

Its up to you whether you report it or not. As the vast majority of SAR's end up in the "we're not interested" pile it doesn't really matter.

I was MLRO at a previous employer. I reported one scumbag client 5 times and they still did nothing...

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Replying to petestar1969:
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By taxwizard
25th Nov 2020 13:14

You are right I imagine especially this time with more fraud going on with SEISS, JRS and bounceback loan they are not going to care with my client (whom I know will pay the money back) though should not have taken the loan in the first place.

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Replying to Adam12345:
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By Echo761
25th Nov 2020 11:14

"a hole up their ****" love it! Ha Ha Ha

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blue sheep
By NH
24th Nov 2020 16:27

I dont really know what people expect - if you give any business a once in a lifetime opportunity to get a loan very easily at a ridiculously low interest rate with no repayments for 12 months in the middle of probably the most uncertain time for business we will ever live through - you would have to be pretty dim to not at least get the loan just in case you needed it.
I was talking to a client the other day who said they used the loan to pay off anything they owed (including tax btw) and now if things go pear shaped it will be much easier to bump the company.
Many other clients still have the money in their bank just in case

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Replying to NH:
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By taxwizard
24th Nov 2020 23:36

Some are only a one man band in construction they have continued working throughout the year. Don't need the loan but taken it anyway. Most of my clients rightly and wrongly have taken the loan so who can blame them.

I have heard about so many new businesses taking the loan for non business expenditure. I would be interested to know when the inevitable liquidation happens how the liquidators deal with such matters. Secondly, if the company is struck off will the government try to get the company reinstated. Just a farce

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Replying to NH:
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By taxwizard
24th Nov 2020 23:39

.

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Replying to NH:
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By taxwizard
24th Nov 2020 23:37

Some are only a one man band in construction they have continued working throughout the year. Don't need the loan but taken it anyway. Most of my clients rightly and wrongly have taken the loan so who can blame them.

I have heard about so many new businesses taking the loan for non business expenditure. I would be interested to know when the inevitable liquidation happens how the liquidators deal with such matters. Secondly, if the company is struck off will the government try to get the company reinstated. Just a farce

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Replying to NH:
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By taxwizard
25th Nov 2020 15:29

Ironically I am just on a call with a ex client who wants to come back. He has taken a 50K bounceback loan with 50K Turnover and has been using the loan to pay off debts. He has set up another company and does not intend to trade with his old company.

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By bernard michael
25th Nov 2020 09:46

The Bounce Back Loan applications have various questions which can be interpreted differently when they refer to the question is the business effected by the corona -virus. Some include the word adversely some don't. There stands confusion and doubt.
I know someone - not a client - whose business has thrived but he has taken on new staff therefore he has been effected by the virus. He happily applied for and got a BBL not seeing the word adversely on the form . He said it wasn't there

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By Guilford Accounting
25th Nov 2020 10:29

I have just disengaged with a client who did this and then withdrew the funds for personal reasons. The pandemic has been a good test of who acts ethically.

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By ShakingMyHead
25th Nov 2020 11:02

I think there were zombie companies out there, hanging on by a thread (residue from the last credit crunch) and this lifeline (BBL) has given them a new boost. I totally expect 2021 to shake out a lot of these businesses... I just want to know, when they liquidate - owing this money to the bank... what happens? I don't think the banks will just 'let' you close. They'll block it. Then you will have to go through the right channels ... and if a liquidator looks through the books and see's this 'loan' has gone to personal spending... I think they'll come after a lot of people (personally) for that money. People need to be careful. There ARE strings attached.

In this case - I think if the business continues and repayments are made on time and its all paid back, then who (really) is going to care? I think the people who'll be of more interest to the government, are those businesses that fail... but that doesn't answer the question - report or not?

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Replying to ShakingMyHead:
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By bernard michael
25th Nov 2020 11:42

ShakingMyHead wrote:

I think there were zombie companies out there, hanging on by a thread (residue from the last credit crunch) and this lifeline (BBL) has given them a new boost. I totally expect 2021 to shake out a lot of these businesses... I just want to know, when they liquidate - owing this money to the bank... what happens? I don't think the banks will just 'let' you close. They'll block it. Then you will have to go through the right channels ... and if a liquidator looks through the books and see's this 'loan' has gone to personal spending... I think they'll come after a lot of people (personally) for that money. People need to be careful. There ARE strings attached.

In this case - I think if the business continues and repayments are made on time and its all paid back, then who (really) is going to care? I think the people who'll be of more interest to the government, are those businesses that fail... but that doesn't answer the question - report or not?


Rather than chase a lot of debts lower than £25000 the banks will call on the Govt guarantee
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Replying to bernard michael:
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By Adam12345
25th Nov 2020 11:55

The original borrower still remains liable. It will just be the government chasing for repayment rather than the bank.

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By rocket_queen
25th Nov 2020 12:16

Firstly, are you sure his business hasn't been adversely affected? I am aware of a business that has traded throughout the pandemic so could be seen as not being adversely affected (not one of the businesses forced to close) however as a result of the pandemic:
* Material costs have increased, squeezing his margins
* Regular subcontractors have had to isolate and he has had to pay more money for subcontractors he does not habitually use
* Potential customers have pulled out of projects or reduced the scope of projects
* Customers have been slower to pay and bad debts have risen
* Subcontractors who have family abroad have gone home and not returned due to the uncertainty of travel leaving him short staffed
* Health and safety costs have increased (provision of masks, sanitiser etc)

The business has been adversely affected, even if it has continued to trade. There's also the very real issue that when the loans were announced no one knew how long they would be around for or how long it would be before business returned to normal. Not many savvy business owners would turn down such a good deal on a loan when they might desperately need it in the future and it no longer be available.

I would be far more worried by the people with no intention of ever repaying the loans and worry less that someone who appears as if they doing well and should be able to repay the loan has taken it.

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Replying to rocket_queen:
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By taxwizard
25th Nov 2020 13:10

Its a IT contractor with one client working from home and has been paid £750 a day every working day this year so has not been affected by the Pandemic. In fact he saved £300 a month travelling costs by not going to the office each day !

Though I agree even if you have been affected by one day you are entitled to the bonaza which maybe a little subjective and sure businesses will find it easy to counter any claim of fraud

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By petestar1969
25th Nov 2020 15:02

Your client sounds worryingly like an employee of whoever is paying them.

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By AthollAccounts
25th Nov 2020 15:39

If in doubt report. The fact you're asking suggests you think it could be, and is it really worth taking the risk of not reporting?

Fraud is apparently one of the main reasons that banks are not opening new business accounts just now, this will surely be investigated generally at some point

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David Winch
By David Winch
25th Nov 2020 15:55

Do you suspect that your client realised he was not eligible (and actually was not eligible) but applied anyway and obtained the loan? If so you have a reportable suspicion.
If, on the other hand your opinion is that the client failed to understand that he was not eligible, then you don't.
David

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Replying to davidwinch:
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By memyself-eye
25th Nov 2020 16:07

I foresee a lot of reports being made. Or maybe not.

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Replying to davidwinch:
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By taxwizard
25th Nov 2020 18:05

A number of clients applied because they though they were entitled to the loan and have not been affected by Covid-19

Though I have another potential client who said he was unaware that he could claim 25% of turnover taken 50K bounce back loan (only entitled to 10K) and the company is currently dormant which is being used to pay debts plus the director have started a new company with the same business activity that is trading. I would imagine this one would need to be reported

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By Calculatorboy
25th Nov 2020 17:51

The chancellor ( poor little rich kid wet behind the big ears) ( for want of a more appropriate expletive) should be held personally liable for all this nonsense ..

As for your client, don't be an anorak , hes just an average applicant, at least he's not buying a ferrari on a pcp with it

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Jennifer Adams
By Jennifer Adams
26th Nov 2020 16:52

The chancellor isnt that thick - he knew many people would apply who havent been affected but it was just too good a deal to pass by.

I attended a webinar given by the FSB a couple of weeks ago on this very subject.

Yes the government are covering any defaults 100% but the FSB have confirmed that its not going to be easy for the banks to get their money back. The banks are going to have to prove that they have taken action to get the money back before applying to the government.

The application for the loan was easy enough and no checks unless money laundering and no footprint on your credit rating. However... the banks will be looking at whether this loan has been repaid or regular payments are being made. They will look at this to see whether to grant further loans down the road or mortgages.

So I've sent an email round to all my clients advising them that if they do think that they will be looking for a loan or mortgage in the future then they should start paying some of it back now. This way they will be able to prove to the bank that they are responsible enough to make payments.

A number of my clients have used the loan to pay off credit card debts.

The people who arent going to get caught are those who have deposited the money abroad and then not repay anything as they cant be traced.

As petestar says most SARS end up in the 'pending' tray (sorry. bin) and nothing happens.

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