Tax on Business Loan

[shabz]

Hi,

I have two questions which I’ve not been able to find the correct answers to related to business loans, my business requires a bank loan however I wanted to clarify tax on this before doing so. If anyone has any knowledge on this topic please shed some light.

question:

if my limited company borrows 5,000 from the bank for running costs such as salary, rent and day to day running is this loan taxable at the end of the financial year.

Also another question quite similar;

Bank Loan: 5,000
Business income: 10,000
Loan repaid: 5,000
Profit retained: 5,000

Am I correct to say corporation tax will be due on only 5,000 and not 10,000 income as £5k was taken as a loan and repaid?

Many thanks

 

[Scalloway]

if my limited company borrows 5,000 from the bank for running costs such as salary, rent and day to day running is this loan taxable at the end of the financial year.

No it is not taxable.

Bank Loan: 5,000
Business income: 10,000
Loan repaid: 5,000
Profit retained: 5,000

Am I correct to say corporation tax will be due on only 5,000 and not 10,000 income as £5k was taken as a loan and repaid?

Your taxable profit is £10,000.

Money received as aloan is not taxable. Loan repayments do not reduce taxable income.

Recieveing and repaying loans is just moving money around.

If you pay interest on the loan that is allowed as a deduction from profit.

 

[shabz]

No it is not taxable.


Your taxable profit is £10,000.

Money received as aloan is not taxable. Loan repayments do not reduce taxable income.

Recieveing and repaying loans is just moving money around.

If you pay interest on the loan that is allowed as a deduction from profit.

many thanks for your reply much appreciated. Am I right to assume this is the same for mortgage, and rental income works the same way as a bank loan.

 

[Scalloway]

Mortgage interest relief for tax is more complicated. However you are allowed a deduction for interest payable from rents you receive. There is more information here but if you require more detailed advice I suggest consulting an accountant.

https://www.which.co.uk/money/tax/i...age-tax-relief-changes-explained-atnsv0j6j782

 

[Lisa Thomas]

I suggest you hire an accountant as mistakes can be costly. DM me if you want a recommendation.

 

[MyAccountantOnline]

many thanks for your reply much appreciated. Am I right to assume this is the same for mortgage, and rental income works the same way as a bank loan.

Is that rental income you have personally or received by your limited company?

 

[Paul Norman]

1. A loan is not taxable.

2. Tax is tricky. I leave it all to my accountant.

 

[SteveHa]

Mortgage interest relief for tax is more complicated. However you are allowed a deduction for interest payable from rents you receive. There is more information here but if you require more detailed advice I suggest consulting an accountant./QUOTE]

Whilst the "Consult an accountant" is good advice, for an incorporated body the mortgage interest relief is the same as it always was. The changes restricting relief to a 20% tax reducer only applies to individuals, and not to corporate mortgagees.