Yes - for a limited company borrowing to buy business equipment, the interest is deductible against corporation tax. The principle is straightforward: interest on borrowing taken out for the purposes of the company's trade is a revenue expense, and GOV.UK's guidance on deductible company expenses confirms an expense counts if it isn't specifically disallowed and it has only a business purpose - the 'wholly and exclusively' test. Since the whole loan funds business equipment, the interest clears it comfortably.
One important distinction, which you've spotted: the capital repayments are not deductible. The equipment itself goes through capital allowances (most likely the annual investment allowance for plant and machinery), while each month's interest charge goes to the profit and loss account and reduces taxable profit. That's exactly why the repayment schedule the lender gave you splits capital from interest - only the interest line belongs in the tax computation.
Records to keep - your accountant will need all of these at year end:
- the loan agreement (shows the purpose of the borrowing, the term and the rate);
- the repayment schedule with its capital/interest split;
- bank statements showing each monthly payment leaving the company account;
- a short board minute recording that the company borrowed to buy the equipment - it documents the business purpose;
- the equipment invoices, so the capital allowances claim can be matched to the borrowing;
- a working of the interest claimed in each accounting period (interest paid may not match the period's charge, since repayments rarely fall neatly on a year end).
Keep everything for six years from the end of the accounting period.
Two cautions. First, if the loan is ever used partly for non-business purposes - paying off a director's personal debt, say - the interest must be apportioned and only the business slice claimed. Second, if the borrowing is from you as director rather than a third-party lender, different rules (and potential benefit-in-kind issues on cheap loans) can apply - this answer assumes a genuine third-party loan. On a clean 12-month business loan, though, this is a straightforward deduction.
