Don’t end up in the clink!
Every day people who have defaulted on the bounceback loan repayments are being banned from being company directors and some have even got prison sentences.
Bounceback loans were too easy to get, with virtually no evidence required and very little checking of accounts before the loan was agreed. However, that doesn't mean that this is not an ongoing situation. Quite the reverse: HMRC now have a dedicated team who are chasing companies that received loans and have not been making payments.
We all know that there is a recession coming, but don't be tempted to default on these loans. We know of companies that have been advised to close the company down and default on the loan, but unless your company is insolvent and has a very good reason for being so, that won't work. When HMRC investigate you have to be able to prove why you are unable to pay the loan off.
If you strike your company off, you will need to follow the correct process for insolvency and, if liquidation is voluntary, then you have to sign papers to say the company is solvent and can pay all its debts. Any insolvency practitioner will spot the holes in your application.
You must also be able to provide proof of how the bounceback loan was used. It can't be used as dividends to pay a director, or to purchase things like a new car for the director's use. It has to be shown to have been used for business purposes.
If you're showing a profit year on year, you can't ignore it. HMRC will expect their money back. The important thing is to pay it back, it doesn't have to be paid all at once. You can pay it in instalments or just pay the interest only. At 2.5% interest it's a very cheap loan.
A few things to consider:
- If you gave inaccurate annual turnover figures to HMRC when you applied for the bounceback loan – that is fraud.
- It's defaulters that are currently being investigated, so if you are making regular payments, even if it's interest only, you won't be in danger of a time-consuming and stressful investigation.
- If you close down your company to avoid paying back your loan, you are likely to end up being investigated.
- If you committed fraud you could end up in jail. It's happening on a regular basis for loans as low as £20,000 and the sentences are upwards of 8 months in some cases.
Before you consider defaulting or if you have any concerns about your bounce back loan, get good advice (just in case, our number is 01992 554444!)