Tax relief on business loan interest and fees
Interest on money borrowed for the business is normally a deductible cost, so it reduces the profit you pay tax on. A company gets the deduction through its loan relationship rules against corporation tax. A sole trader or partner deducts interest on borrowing used for the business against trading profit for income tax, but not interest on money used for private purposes. Only interest and fees are relieved: repaying the capital is not.
This calculator works year by year. It finds the tax on your profit with and without that year's interest and fees, and the difference is the relief. That way marginal relief, the income tax bands and the personal allowance taper are all reflected, rather than one flat rate applied to the cost. Fees are spread evenly over the term.
Worked example: £100,000 over five years for a company
Take £100,000 borrowed at 8% over five years with £2,000 of fees by a company with £100,000 of yearly profit before the loan costs. The monthly repayment is £2,027.64, the interest is £21,658.37 and with the fees the interest and fees come to £23,658.37 before tax.
At £100,000 of profit the company is in the marginal relief band, where the effective rate on extra profit is 26.5%. The corporation tax relief is £6,269.47, which is 26.50% of the cost, so the net cost after tax is £17,388.90. The first year's relief is £2,063.73. The effective annual rate with fees falls from 9.23% before tax to 6.80% after tax.
Company profits, marginal relief and associated companies
The main rate of corporation tax is 25% and the small profits rate is 19% on profits up to £50,000. Between £50,000 and £250,000 marginal relief applies, which works out as an effective rate of 26.5% on each extra pound. The two limits are divided by one plus the number of associated companies, so a company with one associated company has limits of £25,000 and £125,000. They are also reduced for an accounting period shorter than 12 months, which this calculator does not model.
With £40,000 of profit, a £60,000 loan and £1,000 of fees, the relief is the small profits rate: £2,659.05 on a cost of £13,995.02, which is 19.00%. With £400,000 of profit on the £100,000 loan above, the relief is at the main rate: £5,914.59, or 25.00%. With one associated company and £130,000 of profit the relief averages 25.26% of the cost, £5,977.13, because the profit moves back into the marginal band as the deduction grows. With £5,000 of profit the relief is capped by the profit each year, so it is £3,702.98 rather than 26.5% of the cost, and any unused loss is not carried forward in this model.
Sole traders and partners
A sole trader or partner gets relief at their income tax band, using your whole taxable profit and the 2026 to 2027 bands for England, Wales and Northern Ireland or for Scotland. On £100,000 of profit the £100,000 loan above gets 40.00% relief, £9,463.35, so the net cost is £14,195.02 and the effective rate after tax is 5.55%.
Between £100,000 and £125,140 of income the personal allowance is withdrawn, so each extra pound of profit costs more than 40% in tax and each pound deducted saves more. With £110,000 of profit and an £80,000 loan over five years with £2,000 of fees, the relief is 60.01% of the cost, £11,597.08. In Scotland, £60,000 of profit on a £50,000 loan with £2,000 of fees over five years gets relief at 42.00%, £5,388.26. Class 4 National Insurance on the lower profit is not modelled.
Section 455: a loan from a close company to a director
When a close company lends money to a participator, usually a director who is also a shareholder, and the loan is still owed nine months and one day after the end of the company's accounting period, the company pays a section 455 charge. The charge is the dividend upper rate for the tax year the loan was made: 35.75% from 6 April 2026, 33.75% for loans made from 6 April 2022 to 5 April 2026 and 32.5% before that. On a £30,000 loan made in 2026 to 2027 the charge is £10,725.00. On a £60,000 loan made between April 2022 and April 2026 it is £20,250.00, and on £12,345.67 made before April 2022 it is £4,012.34.
The charge is a temporary tax: the company can reclaim it nine months and one day after the end of the accounting period in which the loan is repaid, written off or released, but not any interest on it. The calculator shows a yearly cost of having the tax tied up, from a rate you choose, such as £536.25 a year at 5% on £10,725.00. At the time of checking, GOV.UK's director's loan page still quoted 33.75%, while the law ties the rate to the dividend upper rate, which GOV.UK lists as 35.75% from 6 April 2026. Check the current rate with HMRC or an accountant before you rely on it.
Small loans and what the exemption needs
Section 456 takes some loans outside the charge. A loan to a director or employee is exempt if the amount, together with other loans outstanding from the company, is no more than £15,000, the borrower works full-time for the company, and the borrower has no material interest in it. Choose the exemption in the form only if all three conditions are met. Loans made by a company whose business includes lending money in the ordinary course are also outside the charge, which this calculator does not cover.
Benefit in kind on a cheap or interest-free loan
If a company lends a director or employee more than £10,000 at any time in the tax year at less than HMRC's official rate of interest, the difference is a taxable benefit. The official rate is 3.75% from 6 April 2026. On a £40,000 interest-free loan outstanding for 12 months the benefit is £1,500.00. At a 40% income tax rate that is £600.00 of income tax, and the company pays Class 1A National Insurance of 15% on the benefit, £225.00, a total tax cost of £825.00. Paying the company £1,500.00 of interest at the official rate would remove the benefit.
If the borrower pays 2% interest on the £40,000 for six months of the year and pays 20% tax, the benefit is the 1.75% shortfall over those months, £350.00, with £70.00 of income tax and £52.50 of Class 1A. Loans of £10,000 or less in total are exempt: a £10,000 loan has no benefit even though interest at the official rate would be £375.00 a year, while £10,001 gives a benefit of £375.04. The calculator assumes a level balance through the months entered.
To see how an arrangement fee changes the repayment and the APR, use the business loan calculator with arrangement fee .
For tax relief on equipment bought on finance, see the asset finance calculator .
What this calculator does not model
Interest relief has limits. Companies in a group with net interest and financing costs above £2 million a year can be caught by the corporate interest restriction, which most small companies are not. Relief also needs the loan to be for business purposes, so private use, capital costs that are not deductible and the cash basis for small unincorporated businesses can all change the answer. The model also ignores losses carried forward, tax payment dates, Class 4 National Insurance, payrolling of benefits and the rules that can catch a director who repays and re-borrows within 30 days. Speak to an accountant before acting on any of these figures.
To see the interest alone, use the business loan interest calculator .
Inputs for the business loan tax calculator
What do you want to work out
Tax relief on a business loan, the section 455 charge on a director's loan, or the benefit in kind on a cheap loan. Only the fields that start with that name are used.
Relief: who is borrowing
A limited company gets corporation tax relief. A sole trader or partner gets income tax relief.
Relief: loan amount
How much the business borrows, repaid in level monthly instalments.
Relief: interest rate
The yearly interest rate on the loan. Fees are entered separately.
Relief: term
Whole years, so every accounting year of the loan is a full 12 months.
Relief: arrangement and other fees
Total fees for raising the loan. They are spread evenly over the term for tax and included in the effective rate.
Relief: yearly profit before loan costs
Taxable profit each year before this loan's interest and fees. A sole trader should include all their taxable income.
Relief: associated companies
Companies under common control. They share the £50,000 and £250,000 limits for the small profits rate and marginal relief. Used for a company only.
Relief: where you pay income tax
England, Wales and Northern Ireland share income tax bands and Scotland has its own. Used for a sole trader or partner only.
Section 455: loan still owed to the company
The amount a director or shareholder still owes nine months and one day after the company's accounting period ends.
Section 455: when the loan was made
The charge rate is the dividend upper rate for the tax year of the loan: 35.75% from 6 April 2026, 33.75% before that, 32.5% before April 2022.
Section 455: small-loan exemption
Choose it only if the loan, with any others outstanding, is £15,000 or less and the borrower works full-time and has no material interest.
Section 455: company's cost of funds
A yearly rate you choose, used only to show the cost of having the charge tied up until it is reclaimed.
Benefit in kind: loan balance
The amount owed to the company, assumed level through the months entered. Loans of £10,000 or less in total are exempt.
Benefit in kind: interest you pay
The yearly rate you pay the company. Enter zero for an interest-free loan. There is no benefit if you pay the official rate or more.
Benefit in kind: months outstanding
How many months of the tax year the loan is outstanding, from 1 to 12.
Benefit in kind: your income tax rate
Your highest income tax rate, such as 20, 40 or 45. Scottish rates differ.
CALCULATOR QUESTIONS
UK business loan tax calculator questions
Is business loan interest tax deductible in the UK?
Normally yes, if the loan is used for the business. A company deducts it against corporation tax and a sole trader or partner against trading profit. The capital you repay is never deductible.
How much tax relief do I get on a business loan?
It depends on your profit. A company with £100,000 of profit gets 26.50% relief, which cuts the cost of the example loan from £23,658.37 to £17,388.90. A sole trader on the same profit gets 40.00%.
What is the corporation tax rate on small profits?
The small profits rate is 19% on profits up to £50,000, the main rate is 25%, and marginal relief applies between £50,000 and £250,000. The limits are shared by associated companies.
What is a section 455 charge?
A tax on a close company when a director or shareholder still owes it money nine months and one day after the year end. On a £30,000 loan made in 2026 to 2027 the charge is £10,725.00, and it is reclaimable when the loan is repaid.
Can I take a small loan from my company without section 455 tax?
Possibly. Loans of £15,000 or less to a full-time director or employee with no material interest in the company are outside the charge, counting other loans outstanding.
When is a director's loan a benefit in kind?
When the loans outstanding exceed £10,000 at any time in the tax year and the interest paid is below HMRC's official rate, 3.75% from 6 April 2026. A £40,000 interest-free loan gives a £1,500.00 benefit.
Does this calculator cover the corporate interest restriction?
No. The restriction applies to groups with net interest and financing costs above £2 million a year, which most small companies are not. If that might apply to you, get specialist advice.