How to categorise a Business Loan and repayments
If you have a business loan, normally you would categorise the repayments as Something Else… Business Loan.
If there are interest payments related to the business loan, these should be categorised as Something Else… Interest Paid.
However, if your loan repayment transactions include both the loan itself, and the interest, these need to be categorised more carefully as follows.
How to categorise interest if it is included in a business loan repayment
If interest is included in the full loan repayment figure, you must create a new transaction to account for this.
- Go to Transactions, click Add New, and select the Cash account
- Enter the date as the day before the new tax year. In the UK, for sole traders, this is usually the 5th of April
- Enter all interest paid from for the full tax year, as a single amount
- Mark the transaction as Money Out
- Categorise the transaction as Something Else.. Interest Paid
- Save the transaction
This will ensure your Profit and Loss report correctly shows interest paid as an expense for the tax year
Finally, although it doesn’t affect your net profit, or tax payable, you should ensure your Business Loan paid excludes the interest element. To do this, please:
- Create a second transaction, as above
- Enter the amount of interest paid as a positive figure
- Mark the transaction as Money In
- Categorise the transaction as Something Else … Business Loan
- Save the transaction
Effectively this ensures the balance of the Business Loan paid is correct, meaning your Retained Profit figure is valid