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HMRC internal manual

Business Income Manual

Specific deductions - interest: Only part of the payment satisfies the wholly and exclusively test

This chapter applies for Income Tax purposes to the computation of trade profits and property income. References in the text to a ‘business’ should therefore be taken to include both trades and property businesses. The chapter does not apply for Corporation Tax purposes, where there are separate rules in the loan relationships legislation (see CFM11000).

S34 Income Tax (Trading and Other Income) Act 2005

Where only part of the payment of interest is wholly and exclusively laid out for the purposes of the business then only that part is allowable as a deduction. An example of this is interest on a loan to buy a car that is used partly for business and partly for private purposes. A reasonable apportionment of the interest should be made based on the extent of business use of the asset.