The Bounce Back Loan scheme was the most significant support scheme to be introduced by the UK Government as part of its package of measures to support businesses through the unprecedented challenges brought about by the covid-19 crisis. If eligible, businesses could borrow between £2,000 and £50,000 at a low-interest rate of 2.5% over a 6-year period.  Bounce Back Loans were made on the strict condition that the funds would be used for business, not personal, purposes. So, what can a Bounce Back Loan be used for, and what are the consequences if you did not use it as intended?


Examples of what a Bounce Back Loan can be used for

The Government did not provide a detailed definition of what a bounce back loan could be used for, stating only that it must be used for the ‘economic benefit’ of the business. Examples of the types of expenditure that should satisfy this condition include:

Staff wages

 Payroll is often a business’s most significant outgoing, and the impact of the pandemic left many business owners struggling to meet it. Using the money borrowed under the bounce back loan scheme to cover staff wages during the crisis was almost certainly for the ‘economic benefit’ of the business and acceptable under the scheme. However, the money could not be used to increase employee salaries, and it was illegal to pay dividends with it if the company’s balance sheet showed inadequate profit to support the payment.

Paying suppliers

Strong supplier relationships are key to commercial success, so ensuring your supplier’s invoices are paid promptly is of clear ‘economic benefit’ of your business.


Businesses require utilities such as electricity, gas and water to run, so such services are clearly for the business’s ‘economic benefit’ and could be paid with funds borrowed under the bounce back loan scheme.


What are the consequences if you did not use your Bounce Back Loan for the ‘economic benefit’ of your business?

Some business owners and company directors took out bounce back loans with the intention of using them for personal purposes. Others did so inadvertently, without fully appreciating the basis upon which the funds were provided.

HMRC estimates that around £4.5 billion of the financial support provided by the Government under covid support schemes may have been lost to fraud or error, with the majority relating to sums borrowed under the bounce back loan scheme. As a result, HMRC is proactively investigating any individual suspected of misusing the scheme and taking action against all those discovered to have done so.

Examples of the types of penalties HMRC is imposing on wrongdoers include:

If you are found to have used a bounce back loan for your personal benefit, you face disqualification, the consequences of which can be disastrous. You will be barred from acting as a director or taking any part in the management of a company, for as long as the Disqualification Order is in place. Breach of the Order is a criminal offence which can result in imprisonment, an unlimited fine, or both. The stigma associated with disqualification can subsist long after the disqualification ends, making it incredibly difficult to resurrect your career. As of April 2023, Disqualification Orders had been made in respect of over 400 directors found to have abused covid-19 support schemes.

  • Financial Penalties

 Anyone found to have used funds borrowed under a bounce back loan is likely, at the very least, to be ordered to personally repay them.

  • Imprisonment

In the most serious cases of bounce back loan misuse, HMRC will not hesitate in pursuing criminal prosecutions, and several directors have already been given jail sentences. One such director was found to have used the £25,000 he borrowed under the scheme to purchase a new car and distribute the remaining funds between his family. He received a 2-year jail sentence.


How we can help if you are concerned that you may have used your Bounce Back Loan wrongly

If you are worried that you may have used your bounce back loan for purposes other than your business’s ‘economic benefit’, speak to us as soon as possible. Our specialist HMRC team have helped significant numbers of company directors and business owners whose use of the scheme is being investigated by HMRC. We will consider your use of the funds and advise on the best course of action in the circumstances. We have vast experience dealing with HMRC and will liaise with the investigation officers on your behalf. By facing the issue head-on before it escalates, you may be given a more lenient penalty.