Martin’s analysis: ‘This is not ideal, but you can turn these loans into your own government income support program.‘
MSE founder Martin Lewis said: “While millions of self-employed people are covered by the government’s income support program, huge swathes are ineligible and receive no assistance. This includes those who started a business after around September 2018, freelancers with only some self-employed people, those with profits over £ 50,000 and people who work for themselves through a limited liability company.
“In this case, in addition to their primary use to support all small businesses, bounce loans are a potential solution to declining personal income caused by the economic cataclysm of coronaviruses. Obviously, this is far from ideal – these are loans, according to the official. the support schemes are non-repayable grants. However, until and if something else is developed, for many it is the only show in town (but always check to see if you are eligible for universal credit).
“And while it unfortunately doesn’t seem likely that the support net will be widened, as they are interest-free and payment-free for the first year, if another program were to be launched soon, you can just pay it off at no cost.”
Nothing in the rules prevents you from using the rebound to support your income
Now let’s get down to the technique. Nothing in the bounce rules prevents you from using the loan to support your income (although it is worth checking your own tax situation and your business structure in case something does. However, as I know a positive “you can do it” is better than “nothing says you can’t”, we have written confirmation from Treasury.
“He confirmed that there are no strict rules on what these loans can be spent on, as long as it is under the banner of working capital or investing – that is, things to keep the lights on like debt service, bills, running costs and more, again he confirmed that you can apply for this loan even if the only reason is to support your income .
“Bounce loans are therefore a channel of help. The lack of repayments and interest in the first year makes these loans much more attractive to a struggling business or a struggling business owner than normal finance. things improve within a year, you can write off the loan before there is a real cost – and if it takes longer and there is a cost, it’s pretty cheap.
“In fact, it’s so cheap compared to standard business loans that it’s worth considering using this loan to pay off existing finances, to give you a one-year payment and time off. interest, followed by a reduced cost in the longer term.
“Of course, my rule of thumb is never to borrow more than what you need. And in principle, that is true. However, for the financially self-disciplined, there is an argument that, as this is uninteresting for a while. year, the ease of borrowing now in case it is needed is not risky Take what you might need and then store it in the best savings (you are protected up to £ 85,000) and i hope you won’t use it and then can pay it back free of charge before the end of the year.
“But only do this if you don’t use the money unnecessarily or too generously. If you don’t trust yourself, don’t. Borrow only the minimum you need and try to pay off as quickly as possible. possible. In the end, it’s still debt, and debt is like fire – well used it is a useful tool, misused it burns. “
How in practice to take out the money to support oneself
“This is where it gets complicated. The Treasury has confirmed that you can use the money to support your income, but how? And what is the tax impact? These are questions that for security reasons you should ask your tax or accountant as it depends on your exact setup.
“I have to be honest – that’s not my bag. My specialty is consumer spending, not corporate finance. However, I’ve prepared some basic information that you can review based on conversations with an advisor (I have to check with multiple sources – and will be updated in the future), but again get tailor-made help.
“The big place to start is that this loan is for working capital – cash flow to get you doing what you normally do, so you can use it to keep the normal payments going. says the main rule is “don’t take the piss” – what exactly to do depends on your structure:
- Individual traders / Business owners: You can withdraw money from the business simply because you are the business. And taking money doesn’t trigger any taxes, because you pay for it based on profits, not withdrawals. Again, of course, since this loan is your loan, you are required to repay it.
- Directors of public limited companies: It’s more complex. The loan money belongs to the business, not you. There are three main ways for owners to get money from limited companies:
1. Dividends. They must be paid out of profits and a loan is not a profit. But the loan (or the refinancing of other loans) can provide the cash needed to pay a dividend, if the money is not available otherwise.
2. Salary. If you just want to cover your salary, the first thing to consider is to take time off, but that means you can’t work except to meet your minimum statutory obligations as an administrator.
If that’s not for you, using the loan money to cover your salary is clearly a working capital goal, so that’s fine. It is probably much more difficult to say that you can increase your salary (even to cover lost dividends) because these loans are to be used for the economic benefit of the business, not the individual.
3. A loan to a director. If there is money in the business (for example, the loan releases other cash), then it can be temporarily loaned to an administrator. Still, if that loan isn’t paid back within nine months, the business will typically have to pay a 32.5% quasi-corporation tax, which is a big hit – and watch the tax as a benefit. nature if you do not charge interest for the loan.
And that’s all. Did I mention checking your situation with your own advisor …? “