If you've borrowed money for your business or incur fees on your business accounts, the interest and charges are generally allowable expenses. Here's what counts — and the crucial distinction between interest and capital repayments.
What Financial Costs Can You Claim?
- Business loan interest: The interest portion (not the capital repayment) of any business loan.
- Business bank account fees: Monthly charges, transaction fees, card machine costs.
- Business credit card interest: On purchases made for business purposes.
- Hire purchase interest: On business equipment or vehicles acquired through HP.
- Overdraft charges: Interest and fees on a business overdraft.
- Payment processing fees: Stripe, PayPal, Square — the fees they charge on transactions.
The Key Rule: Interest vs Capital
This is the most important distinction in this category. When you repay a business loan, only the interest is an allowable expense. The capital repayment (the amount you actually borrowed) is not.
For example, if your monthly loan payment is £500 and £100 of that is interest and £400 is capital repayment, only the £100 interest is claimable.
Your loan provider will be able to tell you the interest/capital split, and it's usually shown on your annual statement.
Example: Financial Costs for a Self-Employed Tradesperson
| Expense | Amount |
|---|---|
| Business loan interest (annual) | £480 |
| Business bank account fees | £96 |
| Payment processing fees (Stripe) | £360 |
| Overdraft charges | £45 |
| Total claimable financial costs | £981 |
At the 20% basic rate, this saves £196 in income tax.