Are interest payments on a business loan a tax deductible company expense?

[CompulsiveArsonist]

This is probably a trivial question, I'm just curious to know the answer.

Are interest payments on a business loan a tax deductible expense.?

A company has a business loan of £320,000 used to purchase a property. (Property "worth" £600,000)

Interest payments are ~£20,000 a year (just the interest portion not capital repayment)

Company has turnover of £36,000 in rental income

I always assumed that the interest payments were tax deductible and so the company would pay corporation tax on £16,000 (assuming no expenses)

However at a family function over the weekend someone said to me that this is untrue and that the company would pay Corporation Tax on the full turnover (£36,000)

Is this true?

[Darren at Fox-Bartfield]

Mortgage Interest

Not exactly correct.

You may find the links below useful:-

HMRC

Tax Cafe

Unbiased

Restricted to basic rate relief, however your situation is slightly different with being through a company which pays tax at 20% (at the moment) in any case.

[Qdos Accounting]

Are interest payments on a business loan a tax deductible company expense?

Interest paid on loans taken out by the company is a deductible expense from your final profit or loss figure when your corporation tax bill is calculated. The loan interest can only be deducted from profits if the loan is wholly and exclusively for a business purpose or a property letting if it is part of your business premises.

Therefore in your case you are correct in stating that £16,000 (£36,000 rental income less £20,000 loan interest) will be profits chargeable to corporation tax.

[CompulsiveArsonist]

So what would the CT be payable on, £16,000 or £36,000?

Not exactly correct.

You may find the links below useful:-

HMRC

Tax Cafe

Unbiased

Restricted to basic rate relief, however your situation is slightly different with being through a company which pays tax at 20% (at the moment) in any case.

[Darren at Fox-Bartfield]

Mortgage Interest

Just on the info you've provided, it'll be the £16k.

Presuming that it's wholly & exclusively as Qdos quite rightly states (disclaimer, blah, blah......)

Before NLUK comes in, what's your accountant said?

[CompulsiveArsonist]

Thanks for your replies. I will check this with my accountant but I believe my CUK family.

Just on the info you've provided, it'll be the £16k.

Presuming that it's wholly & exclusively as Qdos quite rightly states (disclaimer, blah, blah......)

Before NLUK comes in, what's your accountant said?