BBLs were introduced to help ease the financial burden in the Covid-19 pandemic. These could be used to clear tax liabilities or help businesses to keep trading throughout the difficult times of covid.
Before considering using your BBL to clear outstanding tax liabilities, contact HMRC and discuss the Time To Pay Arrangement (TTP). TTPs are designed to restructure your arrears, usually over a 6 month period. In some instances, this can extend to 12 months, depending on your circumstances.
During this time, you will have to clear all arrears and also ensure any upcoming tax is due in the timeframe of the arrangement.
Is a Bounce Back Loan classed as income?
No, a Bounce Back Loan (BBL) is generally not considered as income as it is money you have borrowed and are paying back, as opposed to money that the company has generated itself.
The only exception for business loans would be if some or all of your debt is forgiven by your lender. The amount that is forgiven would then be considered as income for tax purposes. However, due to the nature of BBLs, it is very unlikely your loan would be forgiven.
Can a Bounce Back Loan be used to pay company tax bills?
Tax bills have been a particular concern for many business owners during the pandemic, pushing some to use their Bounce Back Loans to pay company tax bills.
However, the Government also brought in special measures that allowed businesses experiencing a downturn due to the pandemic to defer some tax payments.
Given these support measures for outstanding tax payments, it is not necessary to use your Bounce Back Loan to pay your company tax bills. Instead, you should look at using your BBL in a way which would economically benefit your company.
Will a Bounce Back Loan affect my tax return?
As a Bounce Back Loan is not income generated through the business, the interest charged should only be included in your tax return – do not mistake this figure for the repayment figure.
The interest charges should be clearly stated on your annual Bounce Back Loan statement, and the total figure can be included on your tax return for the period of charges incurred in your business’s financial year of trading.
Using the loan to reduce any director’s loans or purchase any goods or services personally will have to be included on your tax return which will then incur a tax liability.
Is a Bounce Back Loan taxable for sole traders?
A Bounce Back Loan is classed as a business liability, not income, so this should not be included as income on your tax return. Only the interest amount can be included as an expense, which becomes deductible.
Similar to a Limited Company, the Bounce Back Loans are not to be used personally and are solely for business purposes. Any personal use of the BBL will need to be included on your tax return and subject to tax under goods and services for personal use.
If the Bounce Back Loan is used to purchase a company asset; for example, vehicles or machinery, then these figures should be included in the tax return and should be treated accordingly in your accounts.
Are Bounce Back Loan repayments tax deductible?
BBL repayments are made up of interest repayments which will accumulate across the duration of the loan, and the repayment of the capital borrowed.
While the repayments of loan capital aren’t tax-deductible, it is possible to deduct the interest generated over time for your tax bill, since interest is usually considered a business expense.
If your Bounce Back Loan is used completely for business purposes, you should be able to claim interest repayments as a tax deduction.