Are loan arrangement fees tax deductible?

2 min read

Usually allowableBusiness borrowing

Timing differsMay be spread

Business purposeThe key test

How fees are treated

An arrangement fee incurred to obtain business finance is generally deductible, but accounting and tax rules may spread it over the life of the loan rather than allowing it all at once. This differs from interest, which is relieved as it accrues.

The business-purpose condition

As with interest, the finance must be for the trade. Keep records of the fee and what the loan funded, and take advice on how to treat it in your accounts.

What it means for you

Fees, like interest, reduce the effective cost of borrowing through tax relief. Fold them into your total cost comparison.

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Frequently asked questions

Are arrangement fees deductible in one year?

Often they are spread over the loan term for tax rather than deducted in full immediately, depending on the accounting treatment. Your accountant can confirm the correct approach.

Do fees reduce my tax bill like interest?

Broadly yes, as an allowable cost of obtaining business finance, though the timing of the relief can differ from interest. Both lower the after-tax cost of borrowing.