The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:
For unincorporated businesses, provided the loan is taken out for a business purpose (eg to buy stock, to pay staff wages or to buy an asset to be used in the trade), interest payments will be allowable expenses for tax purposes. This will include overdraft interest (providing the account is a genuine business account and is not used to fund personal expenses).
Where the loan is taken out for a 'mixed' purpose (for example, to buy a car where the car is used for both business and personal use), only the business proportion of the interest is allowed.
No deduction is allowed for the repayment of the capital part of the loan itself. Monthly loan repayments will therefore need to be split between the interest and the capital repayment elements.
No deduction is available for interest on overdue tax (as this is not an expense incurred in the course of making profits).
Incidental costs of obtaining loan finance (eg loan arrangement fees etc) are allowed.
For additional guidance on interest for sole traders, see the Financing related guidance note.
If an individual borrows money to contribute capital to a partnership, then the interest paid on that loan may qualify for tax relief.
For more guidance on this see the Qualifying loan interest guidance note in the Personal Tax Module (subscription sensitive).
For companies, the taxation of loan interest is under the loa
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