Do I have to pay back my bounce-back loan?

A couple of people have asked us “if I become a limited company, do I have to pay back my bounce-back loan” in the past few months, perhaps having heard a rumour along these lines. 

As accountants who pride ourselves on our clarity and honesty, it’s sometimes our job to deliver the bad news.

And yes, in this case the bounce-back loan is most definitely a loan (as the name states), rather than a grant, and must be repaid regardless of your business structure.

What are bounce-back loans?

The bounce-back loans were available from 4 May 2020 to 21 March 2021. If you were a small business you were allowed to borrow between £2,000 and 25% of your turnover, capped at £50,000.

The Government backed the loans 100% to help banks take on the debt without worry.

This means you are still liable for repayment, but as a last resort the bank would not be out of pocket. A year or so on, this could be where any confusion has arisen.

You could repay over a period of up to six years, with the first 12 months interest-free and no repayments being due. After that, the interest is 2.5%.

If you need more flexibility, you also have the option to extend that six-year period to ten years, pay interest only for a period of time, or freeze payments. More details are available on the British Business Bank website.

So, whether you are a sole trader or self-employed, you will probably be out of the interest-free stage by now and making your repayments.

What other coronavirus-related loans are there?

The bounce-back loan scheme was just one in a number of state-backed lending schemes, including the two business interruption loans which both closed on 31 March 2021.

The one that remains open is the recovery loan scheme (RLS). This is administered by the British Business Bank with about 70 lenders taking part.

It was due to close this December but, to be the bearer of good news this time, the Chancellor announced it would be extended for SMEs until 30 June 2022.

Under the rules of the extension, the RLS will offer a maximum of £2 million, with a Government backing of 70%. As with the bounce-back loan, you are still liable for 100% of the debt.

If you are facing cashflow difficulties or some other coronavirus-related issues, this may be a good option to explore. It doesn’t matter if you have already taken another coronavirus-related loan.

Do I have to pay tax on COVID-19 grants?

You may take this as more bad news, we’re afraid. Yes, most COVID-19 grants and payments do need to be included on your tax return, whether you are self-employed, in a partnership or a business.

It does not necessarily mean there will be a tax liability though and, unlike a loan, you do not need to pay them back. We are talking about support like:

  • coronavirus business support grants from your local authority
  • the self-employment income support scheme
  • the eat-out-to-help-out scheme
  • the furlough scheme.

If you haven’t already done so, you should factor this in when preparing your self-assessment tax return due on or before 31 January 2022.

We are always here to help our clients and new enquirers understand tax and accounting rules.

If you have any questions about coronavirus-related support, or would like to instruct us to prepare your accounts, we can guarantee you will get straight answers and excellent service from us.

Get in touch to talk about your bounce-back loan.

Business owner wonders if they have to repay bounce-back loan

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