Sole Trader Bounce back loan & mortgage bbls

Jeremy535897

Grumpy_chap said:

Jeremy535897 said:

Maybe it was this:
Q. Is there a date restriction on limited companies? I switched from sole trader to limited company on 9 March. I'm basically stuck in the middle of everything. A. "If you can verify that you were a sole trader before 1 March and show that your business is essentially the same as the one being carried out then, you will be able to apply."  
From https://www.moneysavingexpert.com/news/2020/05/small-business-boost-as-bounce-back-loans-launched/ Still not the point though.

The tax deduction for interest is an issue.

Yes, I think it was that, or something very similar, that I remember.

You are correct, it does not directly help in this situation.  However, it is reasonable that the rules would permit this type of change and for the arrangement to port into the new business structure.  Given the long time-scale that the BBLS can last now, 6 (or even 10) years, it is likely there will be a number of businesses that expand and naturally evolve their corporate structure.  Surely, it is in the Government's interest that Bob the builder sole-trader grows the business to Bob The Big Builder Limited and then Bob The Giant Construction International Mega Corporation PLC.  We would not want that growth to be stunted because Bob the builder could not make the first bounce up.

For the tax issue on interest, as this is a business loan and consumer rules do not apply, can Bob the individual lend the money to Bob The Builder Limited and charge the same interest to the business as incurred in repaying the BBLS?

Not unless Bob is a moneylender, I fear.

Grumpy_chap

So, Bob can't make a Director's Loan to the Ltd Co and charge any interest on that?  I thought it was possible, but I have no doubt you are correct.

Jeremy535897

Yes he can, but Bob will pay tax on the interest from the company, and will get no deduction for the interest paid on the BBL, because there is nothing to set it against. The trade has ceased, and it isn't a post cessation expense. Bob would have to have a moneylending trade to set the BBL interest against the interest received from the company. You can't use a BBL to support a moneylending trade, and one loan to a connected person is not a moneylending trade. There are rules where you can claim a deduction if you borrow money to lend to certain close companies you work for, but that wasn't the purpose of the BBL.

Grumpy_chap

Thanks Jeremy.
Maybe Bob won't be worried about the BBLS given his controlling shareholding in the very profitable Bob The Giant Construction International Mega Corporation PLC. 

moatfarm

I like the sound of ‘very profitable Bob The Giant Construction International Mega Corporation PLC’ 😆 

Am I understanding correctly that the last few points were about the tax on the loan only? Not the ability to use the loan in the new business set up of a ltd company?

With reference to Jeremy’s link - (I am unable to respond directly to the link) does that mean Bob the builder could become Bob the builder Limited before acquiring the loan as long as he shows the business was operating before 1st of March and can verify it’s the same business being carried forward? 

Jeremy535897

Yes.The interest deduction is quite an important point though.

The question and answer that I quoted came from here:
https://www.moneysavingexpert.com/news/2020/05/small-business-boost-as-bounce-back-loans-launched/

It was written a while ago, and banks did start to get more difficult. I think you would be best discussing it openly with the bank. Explain you have a sole trade but there would be merits in incorporating, and doing it before taking the BBL. 

Grumpy_chap

Hi moatfarm, yes, as Jeremy said.  I also recommend that you take professional advice from an Accountant about the way to best structure the business.

Thrugelmir

goldie2506 said:

 Secondly, I have an employed job also so I dont need to use my self employed income for affordability. 

Which then raises questions as for the need to apply for a BBL. Underwriters have naturally enquiring minds. 

moatfarm

Thanks Jeremy and Grumpy_chap, you’ve been very helpful with some great advice.