Bounce Back Loan - Have I done anything wrong?

CovidWorried

Jeremy535897 said:

I would generally agree with what is said, but why have your drawings increased quite significantly? Not that there is anything you can do about that now.

I drew the funds to clear some personal debts and to help financially support my family and parents during these tough times.

macman

Nothing to do with BBL, but I'd be more concerned about the level of debt owed to you: currently it's more than 25% of your turnover. Were it not for your very high profit margins, you would be in difficulty?
Given that you are way over the VAT threshold, I'm surprised that you are still operating as a sole trader and not a limited company.

MattMattMattUK

The simplest way to look at it is that if you do not default on the BBL then what you have done with the money is irrlevant, no one will ever investigate or care. As you are a sole trader then you will be personally liable for the loan regardless so if you default they will recover funds by the usual means, for a director who took dividend they would almost certainly also find themselves liable to repay the money.

One issue to consider, if you have increased your earnings from the normal level of £40k pa to £70k pa you will find your tax bill will increase by around £12,000 (as a sole trader) so remember to take that into account in your financial planning, especially as I suspect we are heading for a really difficult first half of the year next year. 

CovidWorried

MattMattMattUK said:

The simplest way to look at it is that if you do not default on the BBL then what you have done with the money is irrlevant, no one will ever investigate or care. As you are a sole trader then you will be personally liable for the loan regardless so if you default they will recover funds by the usual means, for a director who took dividend they would almost certainly also find themselves liable to repay the money.

One issue to consider, if you have increased your earnings from the normal level of £40k pa to £70k pa you will find your tax bill will increase by around £12,000 (as a sole trader) so remember to take that into account in your financial planning, especially as I suspect we are heading for a really difficult first half of the year next year. 

Thanks. My profit hasn't particularly increased. I just didn't used to withdraw all my profit. So my tax bill won't change much, but thank you.

nick74

macman said:

Given that you are way over the VAT threshold, I'm surprised that you are still operating as a sole trader and not a limited company.

I have known sole traders with turnover way higher than that. In some cases it was due to the fact that they ran very profitable businesses from home and wanted to stay 'under the radar' as far as competitors etc were concerned. Incorporating would have meant filing accounts for all the world to see.

Thrugelmir

Profit isn't cash. Until your customers pay you , which some may not. You run the risk of  the business becoming insolvent. 

Jeremy535897

nick74 said:

macman said:

Given that you are way over the VAT threshold, I'm surprised that you are still operating as a sole trader and not a limited company.

I have known sole traders with turnover way higher than that. In some cases it was due to the fact that they ran very profitable businesses from home and wanted to stay 'under the radar' as far as competitors etc were concerned. Incorporating would have meant filing accounts for all the world to see.

Accounts for small companies show virtually nothing. Companies have limited liability, but it is usually circumvented by most creditors (except BBLs). Companies are really only of benefit from a tax point of view if you make lots of taxable profit that you don't spend on yourself or reinvest in plant and machinery.

Grumpy_chap

macman said:

 I'd be more concerned about the level of debt owed to you: currently it's more than 25% of your turnover. Were it not for your very high profit margins, you would be in difficulty?

If the Clients are blue-chip, 90 day payment terms are good.  One of my Clients pays on 180-day terms.

CovidWorried

I also have a balance sheet submitted with my tax return. Will the spike in drawings attract HMRCs attention? I'll still have a positive closing capital balance of about £30-40k.

Jeremy535897

I doubt they have time to look at the figures on a tax return balance sheet, which is effectively voluntary anyway.