The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:
Companies are usually taxed on interest in accordance with the loan relationship rules. These are covered in more detail in the Corporate debt ― overview guidance note.
ITTOIA 2005, s 29
Therefore, provided the loan is taken out for a business purpose and meets the ‘wholly or exclusively’ test, interest payments will be allowable expenses for tax purposes. See the Wholly and exclusively guidance note for general considerations of this principle.
Overdraft or long-term loan interest will be an allowable deduction where it is used for business purposes. For example, interest will be allowable if the loan is used to buy stock, pay staff wages or buy an asset to be used in the trade.
A bank is unlikely to provide a ‘mixed use’ loan. It will be provided solely for the purposes of the business according to their paperwork. However, the actual purpose must be considered, in accordance with general principles. For example, a loan which is used partly for funding the business and partly to make immediate ‘drawings’ would be mixed use, regardless of the fact that it wa
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