Coronavirus bounce back loan & UC capital

seatbeltnoob

It's so hard to find information about things on Google. I remember glancing through a UC capital disclosures and disregards list. IIRC correctly there was something about bounceback loans being disregarded. But I can't find it.

I have applied for the BBL (which is a business loan), just before the deadline - I don't need it, but since it's interest free, no repayments for 12 months, deadline to apply on 31st March. I thought I'd apply  and if it affects UC I will repay it back early. 

The total capital will still be below £16K, so it doesn't push me off the capital limits. But I would like to know how UC treats this. 

I have submitted a question on the journal - But I do know from experience that even UC staff are completely aloof to a lot of things, and they sometimes make the wrong assessment and then you have to question them and then they come back and reverse the decision.

calcotti

BBL loan is a business asset which is disregarded as capital for UC.

tomtom256

See DWP Memo ADM 11/20 for further information.

seatbeltnoob

tomtom256 said:

See DWP Memo ADM 11/20 for further information.

That clarifies some things, but confuses me on others. "Business grants and loans intended to provide support during the Coronavirus outbreak will be treated as payments of capital and will be disregarded as business assets."

I wanted to know what the difference between capital and business asset is. I looked up the dictionary defintion and business asset can be cash, raw materials, stock, office equipment etc.

Capital is cash that's used by a business to pay for day to day operations and fund future growth.

Who decides whether the money in a business is effectvely savings of the business, or it's set aside for future growth?

calcotti

seatbeltnoob said: Who decides whether the money in a business is effectvely savings of the business, or it's set aside for future growth? 

The intended purpose of the money has no relevance.

NedS

calcotti said:

seatbeltnoob said: Who decides whether the money in a business is effectvely savings of the business, or it's set aside for future growth? 

The intended purpose of the money has no relevance.

I disagree. A decision maker (the self employment WC in this case) must make a decision if capital within a business is essential to the running of the business at which point it can be disregarded, or not. A claimant can not 'shield' capital within a business for the purposes of claiming means tested benefits.

For example, say a business declares capital of £20,000 as cash on hand. If the claimant states that capital is from previous profits and is being held within the business to be withdrawn as income or dividends in the future (maybe for tax efficiency purposes), that cash would not be disregarded as it is not an essential business asset. If on the other hand the claimant can show it is intended for the ongoing purchase of stock then the WC may determine it is essential to the ongoing running of the business and can disregard the cash indefinitely.

In the specific case of Covid Bounce Back Loans, my understanding is that they are treated as capital and can be disregarded in full for 12 months regardless of their intended purpose. After 12 months, any cash remaining falls to be treated as above and must be essential to the ongoing running of the business to be disregarded as a business asset.

In general, business assets are disregarded. The above only tends to be invoked when the suspicion is that a claimant is clearly trying to shield capital within a business. Consider for example, an unemployed UC claimant who inherits a large sum (say £100,000) and decides to start a self employed business with their inheritance. Would it be reasonable to disregard that money in full and to continue to support that customer with tax payers money?

calcotti

Can you see your point. I admit I was thinking more about an ongoing award rather than the new claimant. In the case of an ongoing award everything is dealt with through the cash accounting basis and whether money is retained or withdrawn from the business is not relevant.
In the case of your last example that seems to me primarily a consideration of whether or not there has be 'deprivation of capital'.

seatbeltnoob

calcotti said:

Can you see your point. I admit I was thinking more about an ongoing award rather than the new claimant. In the case of an ongoing award everything is dealt with through the cash accounting basis and whether money is retained or withdrawn from the business is not relevant.
In the case of your last example that seems to me primarily a consideration of whether or not there has be 'deprivation of capital'.

I don't recall reading anything  like what NedS is suggesting, I'm sure there are exceptions, £20K in a business account might be a lot for a self employed accountant who works remotely from home. But £20K in the account might be a few days away from bankruptcy for someone who has a bricks and mortar business. Even if it's £20K left after all the bills paid, wages paid, no upcoming lease payments or anything. A chippie couild get their windows vandalised, fryer breaks down, have unexpected legal costs come up within a week. All that could drain your £20K reserve.

I can't fathom who in the DWP goes in and assesses that. I'm sure there are some red flag situations where someone has a HUGE pile of cash that it can't go unnoticed. 

There are mortgage free freeholders whose house might be worth £500K and they are entitled to universal credit because they're out of work. They're not requested to re-mortgage and live off that money.

seatbeltnoob

Also: Business grants and loans intended to provide support during the Coronavirus outbreak will be treated as payments of capital and will be disregarded as business assets.

I take it, business capital is OK, personal capital is limited to £16K. When you read bits in isolation it can confuse you.

seatbeltnoob

Update NedS seems to be correct, UC disregarded it for 12 months. I presume after 12 months they're going to want to see evidence that it is essential for the running of the business.

NedS

seatbeltnoob said:

Update NedS seems to be correct, UC disregarded it for 12 months. I presume after 12 months they're going to want to see evidence that it is essential for the running of the business.

I would assume after 12 months is shouldn't be an issue. Why would any business take out a loan at cost to the business only to leave the cash sat in the bank earning nothing? You are just losing money. So I assume, anyone taking out a Bounce Back loan probably needed the cash to keep the company afloat (otherwise why take it?) and that the money would have long been spent. If that's not the case, and you're still sat on the money after 12 months, I'd be asking why you took it in the first place.