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Longer term consequence of COVID loans

S455 assessments, overdrawn loan accounts and SAR reports

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Any thoughts or input and directions to sources of information, should they exist yet, appreciated.

2 situations, one I can see happening a fair bit. The other I hope to see little of, but have had 1 client so far raise with me

1. Small co client, typically a 1 man band contractor type. No income since April say. Minimal expenses and low salary and dividend extraction. Takes a 25% of annual income COVID loan to support his personal earnings. He has to put food on the table and even cutting out all possible costs (loans/mortage/credit cards) we all need soemthing to live on.

I can see this happening a lot and assuming a return to work reasonably soon I dont think this is a long term issue.

Shorter term I can see this making for a lot of overdrawn DLA's at year ends and potentially insufficient time to make them good within the 9 month window. 

Any rumblings from HMRC on this, perhaps a de minimis limit exemption of s455 assessment for a year or 2 to let people catch up.

2 More serious. 1 client has lied on the application to state a much larger turnover than the company has to receive the maximum BBL of £50,000. We dont know if this has been received or whether the bank has done any checks, like say the account turnover. Given the lack of personal guarantees and we assume likelihood of personal withdrawal of this cash, and likely inability to repay it. Should we given the opportunity to correct the error with the bank, repay the excess (if it has been received). Or should we move straight to disengagement and SAR. 

My gut says we should at least give the opportunity to recant on a stupid bit of temptation. I am pretty sure many have been tempted to do this

 

 

 

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RLI
By lionofludesch
03rd Jun 2020 15:24

Yes, I can see both those scenarios happening.

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By ireallyshouldknowthisbut
03rd Jun 2020 15:31

Seems all pretty obvious that will happen, as I think I said about an hour after the £50k's were announced as no personal liability and no skin the game for the lenders.

Rushi seems to be incredibly naive on this one.
Or simply assumes it will be someone elses problem to clear up the mess in 3 years time and cares not what size of mess he leaves behind.

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By taxwizard
03rd Jun 2020 17:48

I am hearing all sorts on the grapevine, companies taking the money spending it then intending to liquidate. Builders that earlier had converted form sole trader to limited company still having a sole trader business bank account and getting two sets of bounce back loans. Non resident Directors getting loans. People applying for the £50,000 when they only earning small amounts. Who is going to go after them and who really cares ?

Unfortunately, its the greatest giveaway ever, Shame I didn't get anything at all. I will pay for it increased taxes instead when the government writes off billions

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By Accountant A
15th Jun 2020 18:24

[;ig;iu;

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By mg200
04th Jun 2020 11:04

If a sole trader doesn't repay their bounce back loan then they presumably risk their personal assets.

Those with Ltd Companies - I have spoken to a bank who seem to think that the government will expect them to jump through hoops first to collect the loan before relying on the guarantee. Presumably this means enforcing the DLA?

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By RichPort
03rd Jun 2020 23:58

Unfortunately I don't think there is any information out there just yet but I agree with both scenarios being commonplace.

1) With regards to DLA - personally I would think that HMRC's view would be that these should be declared and taxed as dividends or should be taxed in line with current rules on DLA (the latter being most likely in the scenario of one man bands with limited or no retained earnings to draw dividends against). I can't see HMRC having much sympathy on this unfortunately especially given the hardships of the employed who can't easily access a £50k lifeline.

2) This is a huge challenge as surely any dishonesty in the application amounts to fraud, therefore disengagement and SAR is the logical step. However I feel potentially the out on this from the chancellor is the use of 2019 calendar year revenue for the 25% calculation which for most companies won't have been looked at by an accountant in totality yet thus opening the door for the "we used management accounts" excuse. I personally am hoping for some guidance on this in the coming weeks!

One thing is for sure though, there won't be much sympathy from the general public for those who do get pulled up on their questionable claims!

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Glenn Martin
By Glenn Martin
04th Jun 2020 00:15

The BBL is almost another form of quantitive easing. It gives people enough money to get through and re open their business, after they take their chances. I suspect the bad debt from it will be maybe 25%.

I would suprised if many contractor types get into trouble as most can work remotely and worse case should only be off work for 3 months so can catch their earning up and not end up with a large overdrawn DLA.

I have also notice a massive spike in hot tub purchases in my street around a week after the BBL went live. I suspect its connected.

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