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Loans and interest claims against tax

Many people borrow money to run their business. Often this is to fund working capital especially in the early days. Later on it might be for a new bench or other equipment.

I am often asked about what is allowable in this regard.

Firstly you have to separate the loan and what it is used to pay for. The Revenue is not interested in where the loan is from or what security you may have offered for it. The only criteria for getting tax relief is that the money was used for business purposes. If you are borrowing a large amount then it may be secured against your home – this does not in any way affect whether or not you can claim it against tax.

Secondly – what can you claim? The answer is the interest that you pay. If you borrow £2,000 and repay this as £200/month for 12 months, you pay back £2,400. Therefore it has cost you £400 to borrow the money so you can make a tax claim of £400 in this example. There may be a separate tax claim for whatever you bought for £2,000 if it is for equipment or advertising, but not if it is working capital.

As always, if anyone has any queries on this, feel free to email me and I’ll try to help.

Michael B Bennett

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