Tax relief on bank loans for businesses

amysmum · January 2015

Can anyone help please. I have been away from self assessment for some time. Am I right in thinking that if a small business borrows £15000 from a bank and uses for purchasing items (mainly stock for resale) they can only claim for the interest in the profit and loss. I know loans are a BS item and repayment of capital is reduced in the BS but how do I explain this to the client who is adamant that he should be able to claim for all the loan repayment and does not understand why he cant. Many thanks

Gem7321 · January 2015

You are correct. You explain it to him exactly as you have here.

CeeJaySix · January 2015

Tell him he wasn't taxed on receipt of the loan as income.

Therefore why on earth should there be any relief on repaying it? HMRC would essentially be paying [insert effective tax rate]% of the loan for you.

burg · January 2015

You could try explaining that he gets tax relief on what the loan is spent on i.e. the stock in this case.

amysmum · January 2015

Thanks Everybody. I had tried all of the above and he is just not having it. Especially the comment from CeeJaySix, tried to get him to look at that logically but he is just not accepting it. I have referred him to the hmrc website!!!! Better still, told him to ring them if he has half an hour to spare while he waits to get through.

Marti · January 2015

Maybe give him a hypothetical scenario where as a friend loans him £100, he then puts this £100 into his business bank account (though in the end he does not need to use it) and then pays this back to his friend a week later. Can he see that there are no tax implications ?. This way maybe in his mind he can separate the principle loan from the stock and interest aspects.

Tax relief on bank loans for businesses

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