Many businesses use loans from a lender to help with company growth, major purchases or new endeavours. Business loans will always need to be repaid over a set period of time, along with the interest required. As well as understanding the terms and conditions of your specific loan, the repayment requirements and how that will impact things such as your cash flow and potential profit, you’ll also need to consider the effect it could have on your next tax bill.
Are business loans considered taxable income?
The money you receive as a business loan is not taxable in the UK, as the money is borrowed, rather than profit directly generated by your company.
Are business loan repayments considered a business cost?
Repaying the capital (the amount borrowed) of a business loan can’t be considered a business cost for tax purposes in the same way as your running costs are, such as business rent, bills and paying your staff. However, if the business loan is used exclusively for legitimate business purposes, the interest that you pay as part of your loan repayments can usually be deducted from your profit and you won’t pay tax on this.
Can business loans be used to pay tax bills?
A business loan can, in theory, be used to pay a tax or VAT bill. However, this won’t be a suitable option for every business or the right choice in every situation. It’s recommended to consult an experienced accountant before taking out a business loan for this purpose, to ensure that you get tailored specialist advice for your individual circumstances.
Getting help with your business finances and tax requirements
A great accountant can offer assistance with not only your tax, VAT and any other dealings with HMRC, they can also give you the benefit of their experience working with numerous different businesses and can offer useful insights for your company.If you’re looking for some advice on your business finances or have questions about tax, we can help. Get in touch with our team to find out more.