Can I claim interest on a business loan or van finance?

Yes. Interest on money borrowed for your trade can be claimed in 2026-27, on the cash basis or traditional accounting. The old £500 cash basis cap ended from 2024-25, but repaying the money you borrowed is not a finance cost.

Vans, tools and slow-paying customers mean many trades borrow at some point. The rules below follow GOV.UK's guide to self-employed expenses, the cash basis guide, the law and HMRC's Business Income Manual, as checked on 17 October 2026.

What you can and cannot claim

GOV.UK lists bank, overdraft and credit card charges, interest on bank and business loans, hire purchase interest, leasing payments and alternative finance payments, such as Islamic finance, as costs you can claim. It also says you cannot claim repayments of loans, overdrafts or finance arrangements.

The £500 cash basis cap has gone

The cash basis, the default for sole traders since 2024-25, used to have its own rule: interest on loans was limited to £500 a year. The government removed that limit from the 2024-25 tax year, and the law that set it (sections 51A and 57B of the Income Tax (Trading and Other Income) Act 2005) no longer applies. Cash basis users can now claim any amount of interest, as long as it is for the business, the same as with traditional accounting. Some older guidance still mentions the £500 cap, so check the date on anything you read.

It depends on what the money is used for

HMRC's manual says interest is allowable when the borrowed money pays for business assets, such as a van or equipment, or for running costs of the trade. It is the use of the money that counts, and the use can change over time.

• Split use. If a loan paid for something used partly privately, such as a car you also drive at weekends, only the business share of the interest counts.
• One overdraft, two uses. HMRC's example is a trader who uses an overdraft for stock and also towards a private car. Only the interest on the part spent on stock counts.
• Borrowing to take money out. You can take out your profits and the money you put in, even if the business then has to borrow. But borrowing more than that to pay for something private, such as a holiday home, can mean part of the interest is not a business cost.

Van finance and the flat mileage rate

If you claim your van using the flat rate per business mile, the law says that rate replaces any other deduction for the costs of buying, owning, hiring, leasing or using that vehicle. So lease or hire payments for that van cannot be claimed on top. HMRC's manual says the rate covers the costs of buying, running and maintaining the vehicle, and that no actual expenditure can be claimed for a vehicle once you use the flat rate. It makes no exception for loan or hire purchase interest, so finance interest on that van is not claimed on top.

If you claim the van's actual costs instead, the finance interest is claimed alongside them, and the van's own cost is dealt with separately.

Worked example

A self-employed plasterer buys a van on hire purchase in 2026-27 and uses it only for work. The year's statements show £1,800 of interest and £6,000 of repayments off the price. The plasterer claims the van's actual costs, not the mileage rate, and also has £90 of business bank charges.

• Claimable: the £1,800 of interest and the £90 of bank charges, all in full.
• Not interest: the £6,000 paid off the price. On the cash basis, which most sole traders use, that £6,000 is still claimed for 2026-27 as the van's cost, because payments towards equipment are deducted when paid. With traditional accounting the price goes through capital allowances instead. Our van guide explains both.

This is an example only.

What this means for you

For most trades, interest on borrowing for the business, whether a bank loan, van finance, an overdraft or a business credit card, reduces your taxable profit. It does not if you take the £1,000 trading allowance instead of claiming expenses, or for finance on a vehicle claimed at the flat mileage rate. Keep each loan's statements, note what the money was used for, and split out any private share.

Steps to claim finance costs

1. Gather the year's statements for each loan, finance agreement, overdraft and card.
2. Separate the interest and charges from the repayments. Only the interest and charges are finance costs; on the cash basis, hire purchase payments towards a van's price are claimed as the van's cost.
3. Take out the private share of anything also used outside the business.
4. If you use the flat mileage rate for a vehicle, leave out its lease, hire and finance costs, including interest. The flat rate replaces them.
5. Record the figures in the right categories: "Interest on bank and other loans" for interest, and "Bank, credit card and other financial charges" for fees and charges.

If you are in Making Tax Digital (MTD), those are the category names used in quarterly updates. With turnover under £90,000 you can mark each item only as income or expense, though keeping interest separate makes it easier to check. The free MTD check shows when MTD starts for you, and the trades section has more guides on running a trade.