No. In the UK, lending money and charging interest on it are exempt from VAT, so there’s no VAT on any loan, personal or business, on its interest or on its repayments. A few charges and services connected with finance are treated differently, as set out below.
That includes VAT loans: no VAT is added to the amount borrowed or to the repayments.
| Part of a loan | VAT | Source |
|---|---|---|
| The loan itself | None: an exempt supply of credit | VAT Notice 701/49, paragraph 4.1 |
| Interest | None: exempt | Paragraph 4.1 |
| Repaying the capital | None: not a supply | Paragraph 4.1 |
| A lender’s arrangement fee | Usually none, where it’s a charge for the credit | VATFIN3115 |
| A broker’s commission for arranging the loan | None: exempt intermediary service | Paragraphs 9.1 and 9.9 |
| Late payment charges on a loan | None: further charges for the exempt credit, or a penalty outside the scope of VAT | Paragraphs 4.4 and 4.5 |
| Late payment charges on an invoice | Depends on the charge: see below | Paragraphs 4.4 and 4.5 |
| Valuation of assets by a third party | Standard-rated | Paragraph 4.10 |
| A factor’s discount charge | None: exempt | Paragraph 5.5 |
| A factor’s administration charge | Standard-rated | Paragraph 5.5 |
| Advice given on its own | Standard-rated | Paragraph 9.9 |
| Credit checking or credit management by a third party | Standard-rated | Paragraph 4.10 |
| Debt collection | Standard-rated | Paragraph 5.10 |
HMRC’s VAT Notice 701/49: finance explains the rule at paragraph 4.1. If a business supplies credit, lends money, or provides overdrafts or other advances, that supply is exempt. The value of the exempt supply is the gross interest or other sum received, not the repayment of the capital that was lent.
No. Repaying the capital isn’t a supply at all, and the interest part of a repayment is exempt. A loan repayment never has VAT added.
No. Interest on a loan is part of the exempt supply of credit, so it’s charged without VAT.
Normally not. HMRC’s VAT Finance Manual says an arrangement fee or similar fee might represent consideration for the loan itself (VATFIN3115), in which case it’s exempt along with the credit. Discussing administration charges on credit agreements, the manual adds that exemption applies to connected credit charges whatever the amount (VATFIN3125). If the agreement lists a fee for a separate service, check how that fee is treated.
When a broker acts as an intermediary, bringing a borrower and a lender together and working towards the agreement, its service is exempt. Commission a broker receives from the lender for arranging the finance is exempt too (paragraphs 9.1 and 9.9). The fee stays exempt even if the loan doesn’t go ahead: the exemption covers work towards a financial services contract “whether or not it is completed” (paragraph 9.1). Advice on its own, not linked to arranging a deal, is taxable.
VAT Loans is a credit broker: we introduce UK limited companies to a panel of lenders and may receive commission from a lender if finance is arranged.
On a loan, no. On an invoice, it depends on what the charge is for. HMRC’s notice explains this for businesses charging their customers (paragraph 4.5):
A late charge under a loan agreement is either a further charge for the exempt credit or a penalty, so no VAT is added either way.
Some costs of getting a loan are services from other businesses, and those can carry VAT:
Who can reclaim that VAT depends on who the service is for. On a secured loan, the valuer and the solicitor often act for the lender, so a borrower who pays their bill isn’t buying the service. It’s the principle HMRC applies when one party pays another’s legal costs: the payment is a contribution to costs, and the payer can’t recover the VAT on it (VATSC11531). A VAT-registered business can normally reclaim VAT only on services supplied and invoiced to it, for its taxable business.
No VAT is charged on the loan, the interest or the repayments, so there’s nothing to reclaim, and nothing about the loan goes on the VAT return as input tax.
No. Lending is exempt whoever does it, so a business that lends money, or offers credit to its customers, doesn’t charge VAT on the loan or the interest. It can affect the lender’s own VAT position, though: input tax on costs relating to exempt supplies can’t normally be recovered (paragraph 1.9), and HMRC’s partial exemption rules in VAT Notice 706 then apply. Ask your accountant how that affects your business.
No. The threshold is based on VAT taxable turnover, which leaves out anything that’s exempt from VAT. Money a business borrows isn’t a sale at all, and a lender’s interest income is exempt.
Asset finance is different, because it involves goods. Lease rentals usually carry VAT. A hire purchase agreement normally charges VAT on the goods, while credit charges shown separately are exempt. A personal contract purchase (PCP) with an optional final payment at or above the goods’ expected market value is treated as leasing, not credit (paragraph 4.4). Check the agreement, or ask your accountant.
No. A VAT loan pays the VAT the business already owes HMRC, so the VAT return itself doesn’t change, and the loan and its repayments carry no VAT. HMRC is paid directly, and the company repays over three months. See VAT loans, what is a VAT loan? and how a VAT loan works, or get an estimate from the VAT loan calculator. If paying late is the alternative, the VAT late payment penalty calculator shows what that would cost.
No. In the UK, loans and loan interest are exempt from VAT, so no VAT is added.
No. A business pays no VAT on the money it borrows, the interest or the repayments.
No. Overdrafts are listed alongside loans as an exempt supply of credit (paragraph 4.1).
Partly. The discount or interest charge is exempt, but an administration or service charge is standard-rated (paragraph 5.5).
Yes, normally. A third party’s valuation of property or other assets is standard-rated (paragraph 4.10). If the valuer acts for the lender, the borrower can’t reclaim that VAT, even if it pays the bill; it’s reclaimable only when the valuation is supplied and invoiced to your own business.
This is general information about VAT on loans in the UK. For your own business’s position, speak to your accountant; ours is general information, not tax advice. VAT Loans is a credit broker, not a lender, and finance is subject to status, affordability and lender approval.
Written by the VAT Loans team. Last reviewed September 2026.
