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Question.
I operate as a sole trade business and I have applied for a business loan from my bank. There will be interest charged on this business loan. Will I be able to get tax relief on the loan interest that I will pay?
Answer.
Many sole trade businesses will take out a business loan from a bank to finance their trading activities and as with any type of loan the bank will charge interest on this.
An individual who is a sole trader who borrows money to use for that business will be able to claim interest relief on the interest element of the loan under the “wholly and exclusively” principles which relate to any business expenditure. In order for the business to take a deduction for the loan interest HM Revenue & Customs will wish to ensure that the money borrowed is exclusively for trading activities. The same would also apply to individuals who borrow money to acquire property for the purposes of a property business. A sole trade business may be able to obtain relief for interest paid on a loan used to purchase stock or plant and machinery used by the sole trader. The relief is given as a deduction against net income like any other business expense. Note that if the loan is used for purchasing stock or plant and machinery and any stock is taken personally by the sole trader or the plant and machinery is not used wholly for the purposes of the business then the relief is restricted in proportion to the non-business use. The relief is exclusively for interest on business loans and the relief is not available for overdrafts or credit card debts. HM Revenue and Customs provides that interest in excess of a reasonable commercial rate is not eligible for relief. You should always consult with your accountant before availing of any deduction
The advice above is specific to the facts surrounding the questions posed. Neither FPM Accountants LLP nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
Email d.carr@fpmca.com |