Bridging Loans & Interest Relief: Getting It Right on Your CT600

Why Bridging Loans Are Under HMRC Scrutiny

Bridging loans are short-term, high-interest facilities often used to cover gaps in property transactions or cash flow. For limited company directors, the appeal of routing this borrowing through the company — and deducting the interest against Corporation Tax — is obvious. But HMRC is alert to arrangements where personal borrowing is dressed up as a business expense, and the consequences of getting this wrong are significant.

The Basic Rule: Interest Must Be for a Qualifying Purpose

Under the loan relationship rules in the Corporation Tax Act 2009 (Part 5), a company can deduct interest on a loan only where that loan is entered into for a business or commercial purpose. This means the bridging loan must appear in the company's books as a liability, the funds must be used wholly for the company's trade or investment activity, and the arrangement must be at arm's length or properly documented if it involves connected parties.

If the bridging loan is taken out in your personal name — even if you then lend or gift the proceeds to the company — the interest you personally pay is not automatically deductible for the company. You may instead have a separate personal claim under Income Tax Act 2007 relief for interest on loans to close companies, but that is a different and more restricted relief, and it does not appear on the CT600 at all.

When Personal and Business Borrowing Gets Tangled

The most common problem arises in property scenarios. A director takes out a bridging loan personally to fund a company property purchase, or to bridge between the sale of one company asset and acquisition of another. Because the director is the borrower, not the company, the interest payments flow through the director's personal finances. If the company then reimburses the director for those interest payments, HMRC may treat the reimbursement as a taxable benefit or an unauthorised distribution unless the arrangement is meticulously structured.

• Director's loan account implications: Reimbursed interest may be credited to the director's loan account. If that account goes overdrawn, the company faces a Section 455 tax charge of 33.75 percent on the outstanding balance nine months after the year end.
• Benefit in kind risk: If the company pays the interest on a personal loan without a proper commercial agreement, HMRC can argue this is a taxable employment benefit, triggering income tax and National Insurance.
• Disallowed deduction: If the loan relationship rules are not satisfied, the interest is added back in the CT600 computation, increasing taxable profits.

How to Structure It Correctly

If the bridging finance is genuinely for business purposes, the cleanest approach is for the company itself to be the borrower. The loan agreement, the lender's documents, and the repayment schedule should all name the company as the debtor. Interest accrued in the accounting period is then deductible under the loan relationship rules and entered in the CT600 computation as an allowable finance cost, reducing profits before the Corporation Tax rate is applied.

Where the company cannot borrow directly — for example, because a lender insists on a personal guarantee or personal borrower — take specialist advice before proceeding. A formal on-lending arrangement from director to company, with a proper written loan agreement and a commercial interest rate, may preserve the relief, but the documentation must be in place before the funds are advanced.

What to Check Before Filing Your CT600

• Confirm the loan is in the company's name and appears as a liability on the company balance sheet.
• Ensure interest has been accrued correctly in the accounting period to which it relates, not just when paid.
• Check the purpose test — the funds must have been used for a qualifying business or investment activity.
• Review the director's loan account for any unintended debits arising from personal interest payments made by the company.
• If in doubt, obtain a written opinion from a qualified tax adviser before submission.

The Bottom Line

Bridging loan interest can be a legitimate and valuable deduction on your CT600, but only when the borrowing structure is clean. Mixing personal and company finances in this area is one of the most avoidable mistakes a director can make. Get the paperwork right from the outset and you protect both the tax relief and your relationship with HMRC.