Personal service companies (PSCs), receive their fair share of negative publicity. However, in many industries, contractors providing their services via PSCs make up a significant proportion of the workforce, including in vital areas of the public sector and quasi-public sector.
To date, PSCs have been overlooked in the Government’s package of economic relief measures, leaving those contractors who are not currently able to work in a precarious position:
- Contractors working through PSCs are not eligible for a grant through the Self-employment Income Support Scheme as they are not self-employed but rather employees of their PSCs
- The Coronavirus Job Retention Scheme is unlikely to provide a “living wage” in instances where the contractor has furloughed themselves; Most PSCs have a remuneration structure whereby the worker receives a low salary and a high dividend; therefore 80% of a minimal salary is unlikely to be adequate for any sustained period.
- The Coronavirus Business Interruption Loan Scheme (CBILS), while aimed at SMEs, is typically still too expensive for PSCs, and can be structurally inappropriate. There is also a requirement for personal guarantees for loans above a certain amount which is a strong disincentive for many.
The Bounce Back Loan scheme, launching on 4 May, is specifically aimed at companies at the “small” end of “small and medium”- sized businesses spectrum, offering support with borrowing amounts between £2,000 and £50,000. The scheme provides a government guarantee against 100% of the loan, with no interest or fees to pay for 12 months. The loan will be up to 6 years in duration with no repayments during the first 12 months. In recognition of some of the high-interest rates small businesses have been quoted by banks, the Government have said they will work with lenders to agree a low rate of interest for the remaining loan. You can read more about the Bounce Back Loan scheme in our article here.
For contractors operating through PSCs whose services have been put on hold, or for those who are concerned about the recoverability of outstanding invoices, the Bounce Back Loan scheme currently provides the only realistic opportunity for assistance with cash flow in the interim.
The eligibility criteria for the Bounce Back Loan Scheme are relatively straightforward, with the possible exception of the “undertaking in difficulty” condition; This means, where a company has significant losses at 31 December 2019 relative to the amount of equity on the balance sheet then the company may not qualify. Further, the structure of the existing company and the nature of any existing security on debt will be important.
Despite the 100% guarantee, we don’t believe loans will be issued without any commercial or financial checks; business will likely need to demonstrate it is able to repay the loan in different scenarios, and that due care and consideration has been made in the loan application.
Therefore, for those who wish to benefit from the Bounce Back Loan scheme, there is some work to do in advance. The business must first understand if they are eligible to apply, and are then advised to prepare a robust application to increase the chances of the loan being approved without delay.
This blog was written by Sarah Howarth, a Manager at Price Bailey. We recognise that many of our clients will want to talk to us about their Bounce Back Loan or ask for assistance in preparing the application. For further help with preparing management accounts, please contact Will Wilson. For any questions relating to any tax implications, please contact Richard Grimster. Finally, for assistance in preparing a loan application, please contact us on the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.