How to Account for your Self-Employed Income Support Scheme or Bounce Back Loan for your e-commerce Business

Anastasiia Chepinska
Account for your Self-employed income support scheme funds e-commerce - person in face mask

2020 has been quite the ride for everyone, but self-employed e-commerce entrepreneurs have certainly had their stresses. If you qualified for the Self-Employed Income Support Scheme (SEISS) or a Bounce Back Loan (BBL), here’s how to account for them.

Help for self-employed individuals has been limited, but those fortunate enough to qualify for SEISS or BBLs need to ensure they add these to their financial records.

Do I Qualify for the Self-Employed Income Support Scheme?

Those who fit the criteria for SEISS will have been contacted by HMRC before the first payment date.

If you qualified for the first payment, you will be contacted regarding the second. You must be able to explain how your business has been affected on or after 14th July. This could mean a reduction in sales, reduced ability to work (including through lack of childcare), or delayed supplies.

You will be able to claim from 17th August, once you receive notification that you are eligible from HMRC.

HMRC released a video to explain the process in-depth.

How to Account for the Self-Employed Income Support Scheme

First and foremost, it is not compulsory for you to accept the grant, and if you don’t believe you qualify, you shouldn’t. HMRC will be issuing penalties to those whom it deems wrongfully accepted SEISS payments. If you have been overpaid, don’t believe you are eligible or simply do not wish to accept, contact HMRC immediately.

If you are wondering how to account for a government grant, you must record any amounts received in this way in your accounts in a timely manner, as you would any transaction. It must be listed as income received on the day the payment arrives. Keep records of any amounts received, your reference number, and any evidence that backs up your claim that COVID negatively affected your business.

The amount will be fully taxable under Income Tax and National Insurance but is exempt from VAT.

What Counts as Evidence?

Evidence can include documents showing any time off you or other employees have had, documents showing any time your business was closed, accounts showing a reduction in turnover, or evidence of you declining work due to work from home arrangements.

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Do I Qualify for a Bounce Back Loan?

Small and medium-sized business can apply for a loan of £2,000 up to 25% of their turnover (capped at £50,000). There is no interest for the first 12 months and no payments due, at which point it reverts to 2.5% per annum. The loan is spread over 6 years.

According to HMRC, you can apply for a loan through a registered lender if your business is based in the UK, was established before 1st March 2020 and has been adversely impacted by COVID.

If you have already received an amount under the Coronavirus Business Interruption Loan Scheme (CBILS) you are also not eligible.

How to Account for a Bounce Back Loan

A loan of any form, including a Bounce Back Loan, is not income, but a loan received. To account for a Bounce Back Loan, the whole sum is recorded is a liability in your Balance Sheet, with the funds being recorded as normal, through the relevant bank account. It is exempt from VAT.

Loan interest paid will be recorded as an expense in the profit and loss as and when it becomes due. This means a monthly payment will need to show the cashflow out, reduction on the loan payable and the interest paid.

Most e-commerce entrepreneurs like to plan for the future; you can subdivide your loan account into amount payable within 1 year, within 5 years and beyond. This will help keep projections and cashflow on track throughout your repayments.

Next Steps

If you need further assistance to account for a grant or are looking for assistance to protect your e-commerce business from the negative profit connotations of COVID, our team would be happy to help. The market has shifted dramatically, and we can help you scale your business, even if your original plans have been derailed.

The best time to act is now.

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