Can I claim loan costs against corporation tax?

2 min read

Interest reduces profitAnd so the tax

Fees may qualifyPer treatment

Must be for tradeNot non-qualifying use

Capital doesn't countNot an expense

What can be claimed

For a company borrowing for genuine trading purposes, the interest on the loan is normally an allowable deduction that reduces taxable profit and therefore the corporation tax due. Qualifying fees can be claimed too, according to their accounting treatment. The result is that borrowing costs give tax relief — the after-tax cost of the interest is lower than the headline. See using a loan to pay corporation tax.

The trade-purpose test

The deduction depends on the borrowing being for the trade. Money borrowed and used for the business's commercial activities generally qualifies; borrowing for non-qualifying purposes may not. This is one reason to keep the purpose and use of any loan clearly documented — it supports the claim if questioned. The capital repayment, as always, is outside the claim because it is not a cost.

Claiming it properly

To claim, your accounts must separate interest from capital and treat fees correctly, and the figures flow through to the corporation tax computation. Because the rules on timing, qualifying purpose and fee treatment can be technical, this is squarely accountant territory — get the claim reviewed rather than assuming. See which parts are deductible and recording the loan.

Keep clean records from your repayment schedule, and confirm the computation with your accountant.

Frequently asked questions

Does claiming loan interest reduce my corporation tax bill?

Yes, for a profitable trading company — deductible interest reduces taxable profit, and less profit means less corporation tax. The saving is roughly the tax rate applied to the interest deducted. It only helps if you have profits to relieve it against; a loss-making company gets no immediate cash benefit, though losses may carry forward. Your accountant can quantify the effect.

What records do I need to claim loan costs?

Enough to show the interest and qualifying fees clearly, separated from capital, and to demonstrate the borrowing was for the trade: the loan agreement, the amortisation schedule showing the interest/capital split, fee invoices, and your bookkeeping entries. Keeping these organised makes the claim straightforward and supports it if HMRC ever asks. Your accountant will tell you exactly what they need.