You may well be one of the thousands of businesses that has had its whole world turned upside down due to the coronavirus. And when the chancellor introduced the bounceback loan, it may have sounded like music to your years. However, if you’re a limited company, you should make sure you know what you’re getting yourself into. As it’s not as nice and clean as it’s made out to be. For example, if you work for yourself through your limited company, and your profits are over £50,000, you aren’t entitled to the bounce back loan.
Similarly, if you don’t fall into that category but are still an ltd company, you’ll find that you’ll be paying 32.5% in tax if you take the bounceback loan out as a directors loan to support your living standards. That’s nearly a third of your loan gone. Which you want to avoid, especially if it looks as if your business is facing dire straits otherwise.
So why will it cost my limited company an extra 32.5%?
The reason is that the loan actually belongs to the limited company, and not yourself. Taking it out as a directors loan is one of three ways of getting it out of the company. It’s important to bear in mind that you will only be paying 32.5% if the director’s loan isn’t paid within 9 months. Now, timescales wouldn’t usually seem too bad. However, in these times of uncertainty, it’s impossible to know if you’ll be trading again in 9 months. Another way that you would usually take out money from your company would be through dividends.
However, as they’re taken from profits, that doesn’t apply to the bounceback loan. And the only other way to make money out of your limited company is through a salary. Rather than having to pay an extra 32.% of your loan back as a directors loan, it might be worth considering a salary. After all, you might want to consider furloughing yourself. However, this isn’t financially viable for all companies.
How is my bank supporting me?
The majority of banks will provide bounce bank loans however the vast majority won’t to new business customers. It’s always worth checking with your bank as to how they are supporting limited companies through bounce-back loans. And nearly every bank will require you to open a business bank account, that’s if you haven’t already. However, trading as a limited company, it’s good practice to have had a business account set up anyway. If you have any more questions about the bounceback loan, furloughing and what it can do for you as a limited company, get in touch. Our team here at D&K Accounting will be able to run you through your options, and the possible costs of each of the options. You’re going to want as much information as you can before you make any decisions.