Blog Search

Archives

Tax relief for loans used for businesses

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.”

  • Latest news and testimonials

  • Latest News

    • September Q&A

      Q. I have two small businesses which are treated as a group for VAT purposes, so we only submit a single VAT return covering both …

      Read more
    • Making Tax Digital for Business: update

      In July, the Government confirmed that the Summer Finance Bill would be published in September, with the measures dropped from the pre-election Finance Bill being reintroduced …

      Read more
  • Testimonials

    • Partner – Solicitor

      I have worked with SBL over the last 10 years on numerous matters involving owner-managed business. They are professional, personable, knowledgeable and work incredibly hard to provide the best advice to their clients. I would have no hesitation in recommending SBL.

  • Don’t hesitate to ask

    SBL are here to help. With accountancy advice and tax planning experts on hand to guide you and your business on the pathway to success! You can call us on 020 7580 6822, or email us on info@sblaccoutants.com or if you’d prefer you can complete our Free Online Enquiry Form and one of the team will be in touch shortly.

    Don’t hesitate to ask

    Don’t hesitate to ask section
    • This field is for validation purposes and should be left unchanged.

    By submitting my details on this form, I consent to being contacted by a member of the SBL Accountants team by email or telephone. Privacy Policy