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Income support for sole director

Bounce back loan danger

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I am concerned that the Bounce Back Loan is being viewed as a possible solution for the completely inadequate provision for income support for sole directors of limited companies.  Isn't it the case that if the limited company takes out a loan which the director then uses to support his/her personal income (effectively as dividends) - which is what so many are struggling with, there is a danger of a directors loan situation which will result in a large tax bill?

Am I missing something or is this latest scheme still no real use in supporting directors of their own limited company in terms of personal income to pay household bills and feed their families?

Replies (8)

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By Tim Vane
05th May 2020 09:37

The terms of the loan state that it cannot be used for personal purposes, so the money cannot be pushed through the DLA. If directors need money to feed their faimlies, they should claim Universal Credit.

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Replying to Tim Vane:
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By newmoon
05th May 2020 11:56

Do you have the official terms of the loan or a link please, where it says about personal purposes prohibited?

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By Cheshire
05th May 2020 12:23

Its on the British Business Bank website FAQs

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By ireallyshouldknowthisbut
05th May 2020 09:43

Presumably they would use it to declare a *Salary*

Not dividends.

Which is why its going to be abused like mad.

Big fat salary
Losses
CT refund
"did I forget to pay my PAYE?"
Never mind
Close business

New Co.

Now if only there was a way to stop this sort of thing by introducing personal liability....

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By Justin Bryant
05th May 2020 10:25

Yes, and as has been pointed out here before, since there is no obvious downside (apart from being an ex-director of a bust company), as an adviser you are more or less duty bound to give the above advice where appropriate.

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By sanjay100
05th May 2020 13:05

I assume they are giving loans to anyone who has a limited company even those that have just started one ? Are there any controls in place ?

A lot of directors get the loan and intentionally default on them. Just free money for many when a lot more will get nothing and struggle to make ends meet. I can imagine some directors using the 50K fund deposits on properties then later a allow the company will collapse and they will try to justify it was for business expenses.

Not sure if the liquidator or the government will be bothered to take action. Who knows there maybe cases where the directors are based overseas so will be difficult to go after them.

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By paul.benny
05th May 2020 14:47

The maximum is 25% of turnover, so more difficult to abuse for a recently-formed company.

Even though it's low lending risk (because of the government backing), it does still form part of the bank assets. It therefore requires capital backing, which means there is a cost to the bank. Yes, there will be some attempts at abuse but it doesn't stop banks seeking to recover on non-performing loans. I also don't foresee banks handing out the loans willy-nilly, especially not where they don't have established relationships.

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By sanjay100
05th May 2020 22:25

I understand the banks are are just taking the directors word of 25% of turnover and not checking this ?

I am sure some unscrupulous individuals will hide/spend the cash and then liquidate.

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