The quick answer is yes, to a point: your company can deduct the interest on a business loan, and most of the costs of arranging it, but never the capital it repays. The detail is where businesses get caught out, and the detail for a limited company isn't the one a sole trader deals with. Your company's ordinary trading costs have to be wholly and exclusively for the trade. Loan interest doesn't have to pass that test at all: it's dealt with under the loan relationship rules, which follow what your accounts charge.

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What part of a business loan is tax deductible?

The interest is deductible, and so are most of the costs of getting the loan. The capital you repay isn't, because the money you borrowed was never taxed as income in the first place.

So each repayment you make on a business loan splits in two for tax: the interest is an allowable expense that comes off the profit your company pays corporation tax on, and the capital does nothing to your bill. Which is why borrowing costs you less than the number on the statement.

Where your company's route differs from a sole trader's is in how the interest gets there. Most of your trading costs have to be incurred wholly and exclusively for the trade, under section 54 of the Corporation Tax Act 2009. Interest is never tested that way. Borrowing is dealt with under the loan relationship rules in Part 5 of the same Act, and where your company is party to a loan for the purposes of the trade it carries on, section 297 treats the interest as an expense of the trade – deductible, it says, despite section 54. HMRC's income tax guidance on funding a business says in its own first paragraph that the chapter does not apply for corporation tax purposes.

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Which borrowing costs count, and when the relief lands

The costs you can claim go wider than the interest. HMRC's list comes straight out of those rules: what your company spends to bring the loan into existence, to make payments under it, or to get back money it is owed. So the fees count too – and further than most people expect, because a cost you incurred on a loan you applied for and never took can still go in.

Here is what each cost does to your corporation tax bill, and when the relief lands:

The last row is the principle behind the whole list: the cost has to be a cost of the borrowing, not a cost you happened to incur near it. The broker row is the one to watch, because HMRC's examples are all about buying or selling an existing loan rather than arranging a new one, so ask your accountant which side of the line your own fee falls on.

Timing is the other half of the answer, and the half nobody explains. Relief follows your accounts, so a fee your accounts spread over a three-year loan is deducted over three years rather than all in year one, and interest is relieved as it is charged rather than when you happen to pay it. Whatever goes into the accounts you file is normally the figure your deduction follows.

Late tax is a different matter, and worth knowing: the interest HMRC charges you is itself deductible, while a penalty is dealt with on our HMRC tax penalties page.

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Is a business loan treated as income?

No. A loan arrives as a debt you owe rather than profit you've earned, so it never enters your corporation tax calculation, and there is nothing to deduct when the capital goes back out. The same is true in reverse: your company pays no corporation tax on money you lend it, and gets no deduction when it repays you.

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What the deduction is actually worth

A deduction cuts your taxable profit, not your bank balance, so it is worth whatever rate your company pays rather than the full cost of the interest. Every £1 of interest takes 25p off the bill at the 25% main rate, or 19p at the 19% small profits rate.

Which rate you pay depends on your profits: the small profits rate applies up to £50,000, the main rate above £250,000, and Marginal Relief tapers between the two, so plenty of companies land somewhere in the middle. The thresholds shrink if your accounting period is short or your company has associated companies. There is a cap on interest relief too, but it will not reach you: the corporate interest restriction only applies above £2 million of net interest and financing costs in a 12-month period. What the interest costs you in the first place is a separate question, and business loan interest rates vary by lender, by term, and by how your company's finances look.

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What that looks like on a £10,000 loan from iwoca

Take £10,000 repaid over 12 months at our representative rate of 3.33% per 30 days: £2,294 of it is interest. Interest on a business loan is usually deductible for corporation tax. If your company pays the 25% main rate, that could reduce its tax bill by about £574, an after-tax cost of about £1,721. At the 19% small profits rate, the saving is about £436, an after-tax cost of about £1,858. The relief depends on your company's profits, so check with your accountant.

Your actual rate depends on your business. There's no fee on a 12-month loan, but longer terms can carry one.

Repaying early cuts the interest, and the deduction with it, and you still come out well ahead: the interest you save is always bigger than the relief you give up. Which is the limit of what relief does. It lowers the cost of borrowing; it doesn't make borrowing cheap. At our representative rate the interest is real money, and the deduction hands back about a quarter of it, so repaying the week your own money lands does more for the cost than the tax relief ever will. Our business loan calculator takes your own figures.

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If your tax bill lands before your customers pay you

If your taxable profits are up to £1.5 million, your corporation tax deadline falls 9 months and 1 day after your accounting period ends, and it does not move because a customer has paid you late. That collision – a date you cannot change on one side, somebody else's payment terms on the other – is an ordinary reason to borrow rather than a sign that anything has gone wrong.

If a corporation tax bill is due before your cash comes in, a Flexi-Loan lets you pay it on time and repay early for free once your sales catch up, and the interest on it is deductible like any other. Our research, published in December 2024, found that managing cash flow is the top reason for small business loan applications, cited by 61% of brokers. It bites hardest on companies with seasonal income or customers on long payment terms, where a bill falls due in the month when least comes in. If the bill is already overdue, the position changes, and financing tax arrears picks it up from there.

Flexi-Loan in action: Dovetail & Slate

A seasonal dip put pressure on cash flow at Guy Walker's recruitment business, and he needed funding to cover VAT, salaries, and supplier bills until revenue picked up. He bridged the gap without committing to funding for longer than he needed, repaying as cash flow recovered. Read Guy's story.

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Are directors' loans tax deductible?

It depends which way the money went. If you lend your company money, the interest it pays you is a business expense for the company. If you owe your company money, there is nothing for it to deduct, and it can face a corporation tax charge of its own.

If you lend your company money, the interest it pays you is a business expense for the company and personal income for you. Your company pays you that interest less income tax at the basic rate of 20%, then reports and pays the tax to HMRC every quarter on form CT61. As with any other loan, it pays no corporation tax on the money you lent it and gets no deduction for repaying the capital.

If you owe your company money, the direction reverses and so does the tax. The company is receiving interest rather than paying it, so there is nothing to deduct. And if the balance is still outstanding 9 months after your accounting period ends, your company pays corporation tax at 33.75% of it. It can reclaim that once you have permanently repaid the loan, but not the interest HMRC charged, and only 9 months and 1 day after the end of the period in which you repaid. Owe more than £10,000 at any point in the year and the loan is also a benefit in kind, with Class 1 National Insurance to deduct. The date matters as much as the amount: clear the balance before the nine-month point and the charge never arises.

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If the loan paid for something that wasn't business

Your company's deduction follows the purpose of the borrowing. Where a loan has a purpose that is not among the business or other commercial purposes of the company, the interest attributable to that purpose is not brought into account at all: sections 441 and 442 of the Corporation Tax Act 2009 call it an unallowable purpose, and the split is made on what the Act calls a just and reasonable apportionment.

For small businesses that usually turns into the question above rather than an apportionment, because money the company borrows and a director then spends personally is a director's loan. Keeping the two apart is what makes the deduction easy to defend:

• Keep the borrowing in the company's name and in the company's accounts
• Record what the money paid for, with invoices or receipts for the spending it funded
• Where it went to more than one purpose, split the interest on the same basis as the spending

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Can I claim capital allowances on something I bought with the loan?

Yes, and borrowing the money makes no difference to the allowance. You claim capital allowances on the asset and deduct the interest on the loan separately, so you are not choosing between the two.

The annual investment allowance lets you deduct the full cost of most plant and machinery from your profits before tax, up to £1 million a year, and capital allowances work the same way whether you paid cash or borrowed. Cars are the exception: they do not qualify for the annual investment allowance, and you use writing down allowances instead.

What does change the answer is how you financed the asset, and this is where a loan and asset finance part company. Buy it with a loan and your company owns it, so the allowances are straightforward. On a hire purchase contract you can claim for all the payments you will make under the contract once you start using the item, but not for the interest, which goes through the route above instead. On an ordinary lease there is nothing to claim, because you never own the asset. Which of the three you have is a question about the agreement rather than the asset, so check it before you claim.

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Business loan tax FAQs

What happens if the loan is written off?

A loan that is released rather than repaid usually creates a taxable credit for your company, so what you no longer owe can end up in your profits. There are exemptions, including for loans between connected companies, so this is one to put to your accountant.

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Is there VAT on a business loan?

There is no VAT on the loan or on the interest, because granting credit is an exempt supply. Professional fees you pay around the loan, such as a solicitor's bill, can carry VAT in the normal way.

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Is interest on a business credit card deductible?

Interest and charges on a card your company uses for business spending come off your taxable profit the same way loan interest does. Anything personal on the same card is not a business cost, and it is treated like any other money a director takes out of the company.

Check your figures with an accountant. This is general information about the tax treatment of company borrowing, not tax advice, and your own accounts decide the timing of most of it. Every rate and threshold here was checked against GOV.UK on 14 October 2026; the Budget on 28 October 2026 can change any of them.