Is there VAT on business loan interest or fees?

2 min read

Interest: VAT-exemptGenerally

Core fees: usually exemptFollow the lending

No VAT to reclaimOn exempt cost

Ancillary may differCheck specifics

The general position

Lending is a financial service, and interest charged on a business loan is generally exempt from VAT — there is no VAT to pay on it and none to reclaim. Most fees that are part of the core lending — arrangement and similar charges — typically follow the same exempt treatment. So the cost of borrowing is usually a VAT-free line in your accounts. See VAT on a business loan.

Where it can vary

Not every charge connected to finance is automatically exempt. Some ancillary or advisory services bundled around a facility can carry VAT depending on exactly what they are and who supplies them. Broker services, for instance, may be treated differently from the lending itself. Where a charge is not plainly part of the lending, do not assume its VAT treatment — check the invoice and your accountant's view.

Getting the accounting right

Because borrowing cost is generally exempt, it does not go into your reclaimable input VAT. Recording exempt finance costs correctly keeps your VAT return accurate, particularly if your business is partly exempt itself, where the interaction can get technical. If in doubt about any specific fee, confirm the treatment before you file. See the detailed VAT answer and, for VAT sums generally, the VAT calculator.

For anything beyond the general rule, your accountant should confirm the position for your specific charges.

Frequently asked questions

Can I reclaim VAT on my loan interest?

No — interest is generally VAT-exempt, so there is no VAT on it to reclaim. The same usually applies to core lending fees. Because the cost carries no VAT, it simply does not enter your input-VAT reclaim. Only genuinely VAT-bearing supplies give you input VAT to recover, and standard business-loan interest and fees are not among them.

Do broker fees have VAT on them?

They can — broker services are not the same as the lending itself and may carry VAT depending on the nature of the service and the supplier. That differs from the exempt treatment of the loan interest and core fees. Check the broker's invoice and confirm the position with your accountant, as it affects both your cost and any input VAT you might recover.