Taking out a loan in order to settle

[Lynski]

If you take out a loan to pay any adjustments or penalties following a tax investigation, would the interest on the loan be tax deductable?

(I'm sure there was a previous question relating to this but I can't find it. Sorry if this is a repeat question.)

Thanks in advance.

[deanshepherd]

Unfortunately not.


Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk

[Lynski]

Hi Dean,

Thanks for such a prompt reply.

Am I correct to say that, if the tax man was paid from a cash account and then, a loan was taken out to fund the purchase of supplies then the interest would be tax deductable?

If so, I don't really understand what the difference is.

Thanks in advance for any clarification.

[deanshepherd]

For an expense to be allowable for tax purposes it has to be incurred wholly and exclusively for the purposes of the trade.

Settlement of an individuals tax liability (or penalties/interest thereon) is not for the purposes of the trade and is not therefore allowable.

If the loan was used for a business purpose, such as buying stock, then the interest would be an allowable expense.


Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk