Using the SBCS loan scheme to pay taxes

The government has announced its COVID-19 Small Business Cash Flow Loan (SBCS) scheme to help small businesses. The eligibility criteria have been well spelt out publicly but clients might not be aware of all the fine print in the actual loan document that they will need to sign up to.

The interest clauses are not quite what you might expect. A borrower will not be charged any interest if the loan is repaid within 12 months.  However, interest still accrues on the loan and will be charged to the borrower the loan is not repaid in full within the 12 months.

Additionally, interest may be charged at the government's discretion if a default event happens in that first 12 months. One of the default events is not promptly providing any further information “reasonably” requested in connection with the loan.  

If interest is charged, the rate is 3%.

The government's COVID-19 response includes granting Inland Revenue a discretion to vary the requirements under the under an Inland Revenue Acts, where it would be impossible, impractical or unreasonable for a taxpayer to comply due to the consequences of COVID-19.

If a small business taxpayer cannot pay its tax on time, the UOMI rate is currently 7%. Taxpayers might be hoping for a complete write off of UOMI under the Inland Revenue’s new discretion. However, Inland Revenue may decline such requests instead suggesting that the taxpayer obtain an SBCS loan.  And that may well be a better option for the client too.

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