{"id":244659,"date":"2019-09-23T10:29:34","date_gmt":"2019-09-23T09:29:34","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=244659"},"modified":"2026-01-29T02:49:14","modified_gmt":"2026-01-29T02:49:14","slug":"business-loans-and-taxes","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/business-loans\/business-loans-and-taxes","title":{"rendered":"Tax implications of business loans in the UK"},"content":{"rendered":"
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If you\u2019re considering taking out a loan for your business, it\u2019s important to understand how it might affect your tax reporting. Certain business expenses can be deducted from a business\u2019 trading income before it\u2019s subject to tax, but these expenses must be solely used for business purposes. <\/p>

Here, we explain if you\u2019ll need to pay tax or even get tax benefits when getting a business loan.<\/p>

Is a business loan considered taxable income?<\/h3>

No, business loans are not generally considered business income. That\u2019s because a loan is money you borrow and pay back, not money the company has earned.<\/p>

The exception is if a lender or creditor forgives some or all of your debt. This means the debt is written off. The forgiven amount is then considered income for tax purposes.<\/p>

Are business loans tax deductible in the UK?<\/h3>

When you repay a loan, each repayment covers a portion of the amount borrowed (the capital) and some interest. While a business loan itself is not tax deductible, you should be able to claim the interest you pay on the loan as a tax deduction, provided the loan is only used for business purposes. <\/p>

If the loan is used to cover business and personal expenses, you can only claim the interest on the loan amount used for business expenses. This makes it particularly important to keep accurate spending records so you can complete your tax return more easily.<\/p>

This rule can also apply to other forms of borrowing, such as commercial mortgages and business credit cards. In both cases, the interest you pay might also be tax deductible. <\/p>

Are business loans arrangement fees tax deductible?<\/h3>

Some business loans charge an arrangement fee, which is simply a fee for processing the loan. You might find that business loans with arrangement fees come with lower interest rates, but it\u2019s important to calculate the total cost of the loan before deciding which option is best for you. <\/p>

Whether this arrangement fee is tax deductible depends on whether you pay it upfront or add it to your balance. If you pay it upfront, you won\u2019t pay any interest on it, but this means you can\u2019t deduct the cost from your tax bill. On the other hand, if the fee is charged as interest repayments, it could be tax deductible. But you need to check with an accountant to be sure.<\/p>

Can I get a business loan to pay my VAT or tax bill?<\/h3>

Yes, some lenders offer business finance to help cover your VAT or tax bill if your business does not have the capital available.<\/p>

VAT needs to be paid to HMRC on a quarterly basis, but if you haven\u2019t put enough money aside to cover your bill, a VAT loan could help. These simple loans are generally fast to arrange and can help you avoid penalties for paying your VAT bill late. Once you\u2019ve applied to a lender, the lender pays the amount borrowed to HMRC, and you then repay the lender in monthly instalments, usually over a term of between 3 and 12 months. It\u2019s important that you repay your loan on time and make sure you\u2019ve budgeted for your next VAT payment. <\/p>

Note that if you pay Corporation Tax late, you\u2019ll be charged interest. Any late payment interest you pay to HMRC is tax deductible for Corporation Tax purposes, so you can include this expense in your company accounts for the relevant accounting period. <\/p>

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Business loans can be an important source of funds for growing your business, but you should always check with your accountant to confirm the tax implications of taking out a loan.\u201d<\/p>\n