How Do You Claim Bank Charges and Interest as Business Expenses?

When you start a new business or own a limited company, you are liable to pay certain bank charges and interest on your bank transactions. Strong knowledge of the expenses you will pay under bank charges and interest is important for the growth and smooth running of your business. In this article, we will explain what bank charges and interest rates are and how you can claim bank charges and interest as business expenses in the UK at the end of the financial year. Continue reading to learn more.

 

How to Claim Bank Charges and Interest as Business Expenses in the UK?

Bank charges are the amount of money that banks charge in return for their services, for example, payroll transfers, bank transactions, and cheque clearance. Interest rate is the amount charged in return for the amount of loan lent by the bank and the amount deposited. Interest is some percentage of the total amount lent or deposited. Factors that affect the interest rate are:

  • the amount of money lent or borrowed
  • the time duration for which the amount is borrowed
  • the number of times the interest rate is calculated
  • risk perceived over the amount of investment
  • policy change by the government or new laws imposed by the government.

The UK government has provided some flexibility to businessmen and limited company owners to make their business growth easy. In the UK, a businessman or a limited company owner can claim the bank charges and interest rate up to a certain limit. However, there is a distinction between the type of charges you can claim from the government and the types of charges that you cannot claim.

What are the Types of Interest Rates?

There are two main types of interest rates:

1- Simple interest rate:

A simple interest rate is the amount of interest charged on the principal amount initially. This is the amount of interest that the customer must pay over a set duration of time.

2- Compound interest rate:

Compound interest rate, as the name suggests, is the interest rate charged on both the principal amount and the amount of interest that has gathered over a fixed period. A compound interest rate is the most common type of interest in practice in banks.

Charges that You Can Claim from the Government

Following are the types of charges that you can claim.

  • Bank charges on transactions and transfers
  • Interest applicable on bank loans
  • The interest rate applied on business agreements for example, property transfer or company stocks
  • The interest rate on hire and purchase
  • Interest on lease payments

Charges that You Cannot Claim from the Government

Following are the types of charges that you cannot claim:

  • Fees and charges that are associated with the personal account, not with the company account
  • Charges or interest rates on bank loans to individuals
  • Fines charged for non-compliance with rules and regulations of the bank or imposed by the government
  • Penalties charged for non-payment of payable amounts
  • Amounts payable on arranged overdrafts

What is the Limit for Claiming Bank Charges and Interest Rates?

The limit for claiming bank charges and interest rates in the UK is up to £500. Businesses or limited companies can claim insurance policies for their businesses, for example, public liability insurance.

1- When Customers don’t Pay Businesses

Businesses and companies can claim for their bad debts for a financial year. A bad debt is the amount that is entered as a debit in the company account register, but it is never expected to be paid back by the customer. Bad debts can only be claimed if a businessman or a limited company owner is fully assured that the said amount will never be recovered, for example, if the customer has died, he is imprisoned for some reason, or he fled the country. Debts that cannot be claimed for are:

  • Debts that are excluded from the annual turnover of the limited company
  • Debts are associated with the assets like property, buildings, and machinery.

Bad debts that are wrongly calculated. You can only claim a bad debt if it is properly calculated and based on solid proof. You can claim a bad debt just by entering the amount in the column of bad debt.

Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!

 

The Bottom Line

Bank charges and interest rates are charged by banks to businessmen and limited company owners. The government has made some relaxations in terms of bank charges and interest rates for company owners and businessmen. They can claim bank charges and interest rates to a certain limit. Companies can also claim bad debts from the government at the end of a financial year. Bad debts can only be claimed if the company has legit proof of not getting the amount back ever. Contact our professionals to learn more on how to claim bank charges and interest as business expenses.

Disclaimer: All the information provided in this article on claim bank charges and interest as business expenses, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.

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