Interest on business loans

Clairy

Is it tax deductable? That's what the HSBC website seems to imply.

If it is, then I don't need to waste time finding a competitive interest rate, do I?

Pennywise

Clairy wrote: »

Is it tax deductable? That's what the HSBC website seems to imply.

If it is, then I don't need to waste time finding a competitive interest rate, do I?

Yes and yes - interest is deducted from your profits, not your tax bill, so if you are paying tax at 20%, you get 20% tax relief on the interest meaning that you still pay 80% of the interest, so it is worth getting the best deal.

Tooticky

All business costs are tax deductible (as long as the cost is 100% for the business i.e. there is no personal gains at all and it is business related) but tax is charged as a proportion of your pre-tax profit.

So I guess yes, you will pay 'less' in tax, because you've made less profit.

e.g.

If I had paid £5,000 of interest payments and my pre tax profit is £10,000, I would pay 20% tax, (£2,000) leaving me £8,000 Net profit.

If I had only paid £2,500 in charges my pretax profit would have been £12,500 and although I would have paid more in tax (£2,500), I’m left with £10,000 Net profit.

This said I’m no accountant, and you should always check with a pro

Tooticky

Sorry pennywise i was too slow knocking up a reply and your post wasn't there before i stated rambling...

Clairy

That seems sensible, thank you.

HSBC are stretching the truth a little, methinks :rolleyes: