There has been an unprecedented amount of support for businesses struggling due to Covid-19. However, back at the start of the crisis there were delays in the various schemes being set up. Additionally, a high number of newer businesses were completely ineligible. Many company owners used personal borrowings to help keep the business afloat and pay employees, as banks pulled credit products from the market.

Let’s take a simple case study of a company owner who has two employees. She and her husband (not involved with the company) remortgaged their house to raise funds. She borrowed this to the company, enabling her to keep trading and paying one of her employees. The other employee was furloughed, and some of the funds were used to top up their salary to 100% of its usual rate.

The owner will be able to claim tax relief for the interest paid on the remortgage. This will be proportionate to the amount loaned to the company compared to the overall borrowing level. For example, if the interest on the whole mortgage for a tax year was £12,000, the average balance £400,000 and the average balance of the loan to her company was £100,000, the owner can claim tax relief on £3,000 of interest (100,000/400,000 x £12,000).

The fact that the loan is in joint names would appear to introduce a complication, i.e. that relief may be restricted to 50% of the relevant interest. However, HMRC’s guidance confirms that this is not the case in SAIM 10030:

“Where a husband and wife take out a joint loan but only one spouse uses the loan in a form that meets the qualifying conditions, that spouse would be entitled to full relief on the relevant amount of interest paid, even if the joint liability is satisfied out of a joint account.”