Tax implications of business loans

Learn everything you need to know about business loans and tax.

Updated

Funding Xchange

Check your eligibility with a range of lenders in minutes

  • Apply online in as little as 3 minutes
  • Check your eligibility for government backed schemes & other finance
  • Simple, safe and free with no effect on your credit rating
Promoted

If you’re considering taking out a loan for your business, it’s important that you understand how it may affect your tax reporting. Find out if you’ll need to pay tax or even get tax benefits when getting a business loan.

Is a business loan considered taxable income?

No, business loans are not generally considered business income as it is money that you have borrowed and are paying back as opposed to money that the company has earned.

The one major exception is if some or all of your debt is forgiven by the lender or creditor. The amount that is forgiven would then be considered income for tax purposes.

Are business loans tax deductible?

While a business loan itself is not tax deductible, you should be able to claim any interest you pay on the loan as a tax deduction, provided the loan is used for business purposes. If the loan is used to cover business and personal expenses, you would only be able to claim the interest on the amount of the loan that was used by business expenses.

Can I get a business loan to pay my VAT or tax bill?

Yes, some lenders offer business finance to help cover your tax bill if your business does not have the capital available. However, if your business finds itself unable to pay its regular tax bills, going into debt may not be advisable.

You could consider invoice financing, or even a business line of credit, to cover your tax payments if your business has irregular cash flow.

Director’s loans

Just like a normal business loan, if you lend money to your own business through a director’s loan, the company does not have to pay tax on the loan. Any interest you charge would be considered a business expense and therefore could be claimed as a tax deduction for your company.

However, you will need to declare any interest you receive on the loan as personal income, which means you will have to report it when you complete your tax return.

Compare business loans

Table: sorted by representative APR.
Name Product Loan amounts Loan terms Representative APR
The Start Up Loans Company Start Up Loan
£500 to £25,000
1 year to 5 years
-
Esme Business Loan
£10,000 to £250,000 *From £25,500 for Sole Traders
1 year to 5 years
9.51%
Representative example: Borrow £50,000 over 24 months at a rate of 8.40% p.a. (fixed). Representative APR 8.73% and total payable £54,491.93 in monthly repayments of £2,270.5.
NatWest Fixed Rate Small Business Loan
£1,000 to £50,000
1 year to 10 years
-
Representative example: Borrow £10,000 over 5 years at a rate of 11.53% p.a. (fixed). Representative APR 12.49% and total payable £13,295.18 in monthly repayments of £221.59.
HSBC Fixed Rate Small Business Loan
£1,000 to £25,000
1 year to 10 years
7.1%
Representative example: Borrow £13,000 over 5 years at a rate of 7.1% p.a. (fixed). Representative APR 7.1% and total payable £15,404.01 in monthly repayments of £256.73.
Fleximize Unsecured Business Loan
£5,000 to £250,000
3 months to 3 years
-
Representative example for loans of £25,000 or below: Borrow £12,500 over 15 months with an interest rate of 36.4% p.a. (fixed). Representative APR 43.1% and total payable £15,740.33 in monthly repayments of £1,049.36.
Funding Circle Unsecured Business Loan
£10,000 to £250,000
6 months to 5 years
-
MarketFinance Small Business Loan
£5,000 to £250,000
6 months to 3 years
-
iwoca Flexi-Loan
£1,000 to £200,000 *start-ups up to £10,000
1 month to 12 months
49%
Representative example: Borrow £10,000 over 12 months at a rate of 40% p.a. (variable). Representative APR 49% and total payable £12,294.
Spotcap Short Term Loan
£50,000 to £350,000
1 month to 24 months
22.8%
Representative example: Borrow £100,000 over 12 months with an average monthly interest rate of 1.4% and a 2.0% arrangement fee. Representative APR 22.8% and total payable £109,332 in monthly repayments of £9,111.
Capital Box Loan
£2,000 to £50,000
18 months
-
Growth Street GrowthLine
£25,000 to £1,000,000
From 1 day and open-ended
-
loading

Compare up to 4 providers

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.

More guides on Finder

  • Sell on Squarespace

    In this expert review you’ll find out exactly what Squarespace can offer you, how much a monthly subscription costs and how this website-building platform stacks up against its competitors.

  • How to get a £200,000 loan

    If you’re considering applying for a £200,000 personal loan, check out this guide which explains how to compare lenders and find the best deal.

  • How to get a £150,000 loan

    If you’re considering applying for a £150,000 personal loan, check out this guide which explains how to compare lenders and find the best deal.

  • How to get a £100,000 loan

    If you’re considering applying for a £100,000 personal loan, check out this guide which explains how to compare lenders and find the best deal.

  • Best 2 year fixed rate bonds in the UK 2020

    If you’re planning to save your money into a fixed rate bond, we take a look at how you can find the best 2 year option.

  • Best buy-to-let mortgage

    If you’re in need of a buy-to-let mortgage, this guide looks at how you can find the best one for your circumstances.

  • Premium Bond alternatives

    In this guide, we explore some alternatives to premium bonds and whether these may be a better savings option for you.

  • Best bank account for teens in the UK 2020

    Find out the different types of bank accounts for your teenager and how to choose the right one.

  • Best ways to invest £200 per month

    Wondering what to invest £200 in? Read our guide to learn what you need to consider first and find the best option for you.

  • Best current accounts in the UK 2020

    Find out what the best bank account is for packaged accounts, basic accounts and cashback accounts.

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site