Newsletter Spring 2012

Unrelieved interest

If you run a business and borrow money by loan or overdraft to finance it, you can generally set the interest you pay against the profit you make. If you own a trading company and take a bank loan to invest in it, you can claim tax relief for the interest on that, making the loan cheaper – it costs you 80% or 60% or 50% of the interest rate, depending on your marginal rate of tax.

Some taxpayers recently found to their cost that you can’t claim relief for interest on a personal overdraft which finances a company – it’s got to be a fixed loan. Overdraft rates are usually higher than loan rates anyway, but the tax rules make them even worse – even though the overdraft interest would be allowable if the business was run as a sole trade, or if the company itself had the overdraft, the way these traders had set up their finances meant there was no relief at all.

If you want to know the tax implications of any borrowings you have or are thinking about, we can advise you.