Bounce back loans and tax

XEO25

I've searched online but can't seem to find an answer to this seemingly obvious question - what are the tax implications of using a BB loan for income (PAYE and / or dividends via Ltd company)?
For example, if I use the BB loan to pay my PAYE salary for 3 months @ £2,500 per month - do I have to pay tax on this salary as normal?
Would it be more tax efficient (and possible) to pay the BB loan as a dividend, at what I assume would be around 7% tax?
I've seen people saying they're taking out BB loans to simply clear their personal debts and boasting that the loans come with great interest rates (2.5%) so it's a no brainier, without mentioning any tax implications. Am I missing something?

[Deleted User]

If you use the BBL to pay salary then the salary is taxable as normal, however if you pay salaries, but especially director's salaries and make the company insolvent then you are conducting wrongful trading which makes you personally liable.

BBLs can not be used to pay dividend, dividend can only be paid from retained profit, acquiring loans and paying them out as dividend is illegal.

The people using a BBL to clear personal debts are sole traders, they are liable for the debt personally. If a company director using the BBL was doing it then they would have to be making a loan from the company to the director, which would become taxable, as well as having to be repaid. 

XEO25

MadMattUK said:

If you use the BBL to pay salary then the salary is taxable as normal, however if you pay salaries, but especially director's salaries and make the company insolvent then you are conducting wrongful trading which makes you personally liable.

BBLs can not be used to pay dividend, dividend can only be paid from retained profit, acquiring loans and paying them out as dividend is illegal.

The people using a BBL to clear personal debts are sole traders, they are liable for the debt personally. If a company director using the BBL was doing it then they would have to be making a loan from the company to the director, which would become taxable, as well as having to be repaid. 

Thanks for clearing that up - I thought it sounded too good to be true. So even the people who plan on extracting BBL funds legitimately via salaries are going to be paying a lot more than the 2.5% interest rate on the loan?

Grumpy_chap

XEO25 said:

So even the people who plan on extracting BBL funds legitimately via salaries are going to be paying a lot more than the 2.5% interest rate on the loan?

Yes and no.
If you have high interest personal debts, that will need to be paid at some future point using funds drawn from your Ltd Co, and subject to the correct tax when the money is drawn out.
So, it may still make sense to take the BBL at 2.5% interest (in the company), then pay yourself salary and pay the tax on it now so that you (personally) have the funds to clear the high interest rate debts.
You still need to take into account the solvency of the Ltd Co.  You might not save all that much when everything is considered as it is not obvious and straightforward.  It would be worth asking you Accountant.

jimmyjammy001

A good thing is that the BBL are unsecured debt so they can't come after your personal assets if sole trader, I think there are also some other advantages to it being backed by the government, banks are guaranteed the money whether you pay it back or not, its a win win for the banks. 

Jeremy535897

jimmyjammy001 said:

A good thing is that the BBL are unsecured debt so they can't come after your personal assets if sole trader, I think there are also some other advantages to it being backed by the government, banks are guaranteed the money whether you pay it back or not, its a win win for the banks. 

Yes they can. They are only precluded from taking uou house or your primary vehicle.

Sibbers123

jimmyjammy001 said:

A good thing is that the BBL are unsecured debt so they can't come after your personal assets if sole trader, I think there are also some other advantages to it being backed by the government, banks are guaranteed the money whether you pay it back or not, its a win win for the banks. 

Your understanding is incorrect. 

They can recover costs by repossessing any assets except your primary residence or personal vehicle. Meaning they can take cash, second cars, second properties, chattels etc.

if claimed fraudulently (i.e. claimed more than 25% of turnover) then your private residence will not be safe.