The Loan Statement Your Accountant Keeps Asking For Isn't Paperwork for Its Own Sake
Every business with a loan eventually gets the same email from its accountant: "Can you send the loan statements?" It can feel like a chore. It is actually one of the requests that most directly affects your tax result and your books.
Why a Repayment Is Not One Number
A loan repayment is made up of two parts:
- Interest, the cost of borrowing. For a loan used to earn business income, this is generally deductible.
- Principal, the reduction of the amount you borrowed. This is not an expense. It repays a liability.
Your bank feed shows one payment. Only the loan statement shows the split.
What Goes Wrong Without It
- The whole repayment is booked as an expense. Profit looks lower than it really is, and the deduction is overstated.
- The whole repayment is booked against the loan. The interest deduction is missed, and tax is overpaid.
- The loan balance in the books drifts away from the lender's. Over time, the balance sheet stops being reliable, which matters when you apply for finance or sell the business.
The Wider Picture
Loans also raise questions worth checking each year:
- Was the borrowed money actually used for business purposes? The use of the funds, not the security, generally determines deductibility.
- Are there fees or establishment costs that are deductible over time?
- Does an asset finance arrangement such as a chattel mortgage or hire purchase split interest and cost differently?
Every business with a loan eventually gets the same email from its accountant: "Can you send the loan statements?" It can feel like a chore. It is actually one of the requests that most directly affects your tax result and your books.
What to Give Your Accountant
- Statements covering the full financial year, not only a closing balance.
- Loan agreements or variations, especially after a refinance.
- Details of what the funds were used for.
RBizz reconciles loan balances and splits interest from principal so the books and the tax return both reflect what really happened. Get in touch if your loan repayments are still being booked as one lump.
