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Definition
Tax-deductible interest is interest on borrowing used for business purposes, which reduces taxable profit if it meets the wholly-and-exclusively test. Most trading-company loan interest qualifies, though the corporate interest restriction can cap deductions for very large groups (over £2m net interest). It lowers the net-of-tax cost of the debt.
In plain terms
Interest that passes the test is shared with the taxman — it comes off your profit before tax is worked out, so it costs you less.
Why it matters for your company
Keep borrowing for genuine business use and clear records, and take advice on large interest bills. See net-of-tax cost and the answer on whether business loan interest is tax deductible.
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