The impact of Bounce Back Loans, Time to Pay arrangements and Redundancies on SMEs

According to the Government’s Insolvency Statistics, the number of registered company insolvencies in England and Wales was 2,053 in April 2025. This is a slight increase compared to March 2025; however, it is 5% lower than in April 2024. In general, company insolvencies over the past year have been high relative to historical levels, which is reflective of the ongoing challenges faced by businesses.

Small and medium-sized enterprises (SMEs) across the UK face are particularly facing a difficult time. As discussed in a previous , the Government supported businesses during COVID-19 through Bounce Back Loans (BBLs) and Time To Pay (TTP) arrangements. However, SMEs face new challenges due to strict enforcement measures in relation to these BBLs, increased tax penalties, increased redundancies, and high rejection rates for business loans.

The crackdown on Bounce Back Loan fraud

The Government is cracking down on BBL fraud. For example, in February 2025 Arti Deda was jailed for two and a half years and disqualified from acting as a director for ten years after fraudulently securing £100,000 in BBLs. This loan was then transferred to associates rather than used for the benefit of the business. David Snasdell, Chief Investigator at the Insolvency Service, commented: “This significant jail term and director disqualification reflects the seriousness of Covid-related fraud … The Insolvency Service is committed to investigating these crimes, which have a substantial impact on the public purse, and prosecuting those responsible.”

The Insolvency Service has recently reported that it has obtained 2,167 director disqualifications, 343 bankruptcy restrictions, and 62 criminal convictions in relation to COVID-19 financial support scheme misconduct. This is clearly an area that the Insolvency Service is taking very seriously.

You cannot act as a director for another company or be involved in the formation, marketing or management of a limited company during your disqualification period unless you have the permission of the court. If this is something you are concerned about, you should seek legal advice.

Time To Pay arrangements

As of February 2025, businesses owe up to £29 billion to HMRC by way of unpaid Corporation Tax, VAT and National Insurance. Businesses should be concerned, as from April 2025, penalties for late tax and VAT returns have risen sharply. These range from 3% to 10% depending on the duration of the delay. These measures reflect part of HMRC’s enforcement drive, which includes the employment of more private debt collectors and compliance officers as part of their efforts to close the £44 billion tax gap between the amount of tax that should have been collected and what has been.

HMRC’s Time To Pay arrangements remain a critical relief mechanism for SMEs struggling to meet their tax obligations. Eligible businesses can apply to spread their tax bills across manageable instalments. This offers a crucial buffer, particularly for already struggling SMEs. However, businesses must ensure they negotiate sustainable and realistic arrangements that consider both their current financial situation and future revenue forecasts. SMEs must be proactive by, for example, engaging early with HMRC, maintaining up-to-date accounts and obtaining legal advice as soon as financial difficulties arise.

Redundancies

It has been reported that one in four employers plan to make redundancies in the next three months due to rising employment costs and growing global uncertainties. A recent Global Payroll Association survey found that 89% of SMEs have already made redundancies since the October 2024 Budget. For many businesses, cutting staff has become a financial necessity to manage rising overheads. However, increased redundancies risks overburdening remaining employees and increased expenses due to redundancy payment claims.

Access to finance

With the above financial difficulties in mind, it is concerning to note that a recent report by the Department for Business and Trade revealed that, on average, fewer than half of business loan applications are approved. This is down from an approval rate of 67% pre-pandemic. SMEs are therefore struggling to access the finance needed to invest in their businesses and combat rising costs. This has led to SMEs seeking to borrow from high-risk private lenders. This is coupled with the fact that lenders have shut 140,000 SME accounts in 2023, often without adequate explanation.

The financial pressures on SMEs remain significant in 2025, with tighter lending, tougher enforcement, rising penalties, and growing redundancy costs all combining to create a challenging environment.

If you are concerned about the financial health of your company, or need advice on managing these issues, please contact restructuring & insolvency lawyer Aman Sehgal.