Corporation Tax on Bank Interest: How It Works

Corporation Tax on Bank Interest: How It Works

Your limited company earns interest on its business bank account — maybe just a few pounds a month, maybe thousands sitting in a savings account. Either way, HMRC wants its share. But how exactly is bank interest taxed for a UK company, and where does it go on your CT600?

This guide explains the corporation tax treatment of bank interest for limited companies, including how to report it correctly, how it interacts with the loan relationships rules, and practical ways to manage the tax impact.

Is Bank Interest Taxable for a Limited Company?

Yes. All interest earned by a UK limited company is taxable income. Unlike individuals — who get a Personal Savings Allowance of up to £1,000 tax-free — companies receive no equivalent allowance. Every penny of interest is subject to corporation tax.

This applies to:

• Business current account interest — even tiny amounts
• Savings accounts and deposit accounts — the most common source
• Fixed-term deposits and bonds — including notice accounts
• Treasury deposits and money market funds — for companies with larger cash reserves
• Interest on director loans — when the company has lent money to a director and charges interest

The key principle

Bank interest received by a company is treated as non-trading income under the loan relationships regime. It's not part of your trading profits — it sits in a separate category on your CT600.

How Bank Interest Is Taxed: The Loan Relationships Regime

The UK's taxation of interest for companies falls under the loan relationships rules (Corporation Tax Act 2009, Part 5). This sounds complex, but the concept is straightforward:

• Any arrangement where a company receives or pays interest creates a loan relationship
• A bank account where you earn interest is a creditor loan relationship (the bank owes you)
• The interest income (or expense) must be accounted for using proper accounting principles

Non-trading vs trading loan relationships

For the vast majority of limited companies, bank interest is a non-trading loan relationship credit. Unless your company's actual trade involves lending money, your bank interest goes in Box 172.

Corporation Tax Rates on Bank Interest (2024/25 and 2025/26)

Bank interest is taxed at the same corporation tax rate as the rest of your profits. There's no special rate for investment income.

Important: These thresholds are divided by the number of associated companies. If your company has one associated company, the small profits threshold drops to £25,000.

Example

Your company made £40,000 in trading profits and £3,000 in bank interest. Total taxable profits: £43,000. Because this is under £50,000, corporation tax is charged at 19%, giving a tax bill of £8,170.

If total profits exceeded £50,000 (including the bank interest), you'd move into the marginal relief band — potentially increasing the effective rate significantly. This is worth planning around.

Where to Report Bank Interest on Your CT600

Reporting bank interest involves several boxes on the CT600:

Step-by-step

1. Box 172 — Enter the total non-trading loan relationship profits (your bank interest, net of any non-trading interest expenses)
2. Box 1 (on the computation) — Include bank interest in your total income
3. CT600A — Not required for simple bank interest. This supplementary page is for loans to participators (directors), not loan relationships generally
4. Accounts and computations — Your iXBRL accounts should show bank interest as a separate line in the profit and loss account

Common reporting scenarios

Scenario 1: Simple bank interest only Your company earned £500 in interest on a savings account. Enter £500 in Box 172. It flows into total profits and is taxed at your marginal rate.

Scenario 2: Bank interest offset by non-trading loan relationship deficits You earned £500 in bank interest but paid £800 in non-trading interest (e.g., interest on a loan used to buy an investment property). The net position is a deficit of £300 — enter nil in Box 172 and carry the deficit forward or claim relief elsewhere.

Scenario 3: Multiple interest sources You have interest from a current account (£50), a savings account (£2,000), and a fixed-term deposit (£1,500). Total: £3,550. Enter £3,550 in Box 172.

Bank Interest: Gross or Net?

Banks pay interest to companies gross — without deducting tax. This is different from how it used to work for individuals (before the Personal Savings Allowance).

This means:

• You receive the full amount — no tax is deducted at source
• You must report the full amount on your CT600
• No tax credit to claim — since nothing was deducted, there's no reclaim

If you're coming from a sole trader background where banks used to deduct basic rate tax, forget that — it doesn't apply to companies.

Can You Reduce Corporation Tax on Bank Interest?

You can't avoid tax on bank interest entirely, but there are legitimate strategies to manage it:

1. Offset non-trading interest expenses

If the company has paid interest on loans used for non-trading purposes (e.g., buying shares in another company, investment property), those costs can be set against non-trading income like bank interest.

2. Make pension contributions

Pension contributions are deductible against total profits, including non-trading income. If your company has significant bank interest, an employer pension contribution reduces the overall tax bill.

3. Pay dividends instead of accumulating cash

If cash is sitting in a company account earning taxable interest, consider whether declaring dividends might be more tax-efficient overall. Dividends paid by the company aren't tax-deductible, but they move cash to the director personally where it might earn interest within a Personal Savings Allowance.

4. Manage the £50,000 threshold

If your trading profits are close to £50,000, additional bank interest could push you into the marginal relief band where the effective rate spikes to 26.5%. It may be worth timing large deposits or considering ISAs (though companies can't hold ISAs — only individuals).

5. Use the money in the trade

The simplest approach: use surplus cash for allowable business expenses or capital allowances rather than letting it accumulate interest.

Bank Interest Received vs Bank Interest Paid

Companies often both receive and pay interest. Here's how the two sides work:

Trading vs non-trading interest expenses

Interest on a bank loan used for the trade (buying stock, equipment, working capital) is a trading expense — deducted before arriving at trading profits in Box 155.

Interest on a loan used for non-trading purposes (buying investments, lending to another group company) is a non-trading loan relationship debit — offset against Box 172 income.

Getting this classification right matters. If you offset trading interest against non-trading income, HMRC may challenge it.

What If You Forget to Report Bank Interest?

HMRC receives data from banks about interest paid to companies. If you omit bank interest from your CT600:

• Discovery assessment — HMRC can open an enquiry and issue an assessment for the underpaid tax
• Penalties — Up to 30% of the unpaid tax for a careless error, more if deliberate
• Interest charges — Late payment interest runs from the normal due date

Even small amounts should be reported. HMRC's systems cross-reference bank interest data, and an unexplained omission can trigger a wider review of your return.

Special Cases

Interest from overseas bank accounts

If your company holds money in a non-UK bank account, the interest is still taxable in the UK. You may need to claim double taxation relief if tax was withheld abroad. This requires completing the CT600F supplementary page.

Interest on director loans

If the company has lent money to a director and charges interest, that interest (when received) is taxable income for the company. It's also a non-trading loan relationship credit. The director gets tax relief on the interest paid if the loan was used for qualifying purposes — but the company must report the income.

Interest from group companies

Inter-company interest between UK group companies is taxable for the recipient and deductible for the payer. The transfer pricing rules (Part 4, TIOPA 2010) require that interest rates are at arm's length — you can't charge artificially high or low rates to shift profits.

Negative interest

In unusual market conditions, some banks have charged negative interest on large deposits. Negative interest is a cost to the company and would be treated as a non-trading loan relationship debit.

How Taxpipe Handles Bank Interest

Filing your CT600 with Taxpipe simplifies bank interest reporting:

• Guided input — Enter your bank interest amounts and Taxpipe routes them to the correct CT600 boxes
• Automatic computation — The tax calculation includes non-trading income, marginal relief, and associated company adjustments
• iXBRL generation — Your accounts are tagged correctly, including separate disclosure of bank interest
• No accountant needed — File your CT600 yourself with confidence that bank interest is handled correctly

Start your CT600 filing today →

Frequently Asked Questions

Do companies get a tax-free allowance on bank interest?

No. Unlike individuals who get a Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate), limited companies have no equivalent allowance. All bank interest is taxable from the first penny.

What corporation tax rate applies to bank interest?

The same rate as your other profits. For FY 2024/25 and 2025/26: 19% if total profits are under £50,000, 25% if over £250,000, with marginal relief in between. Bank interest is added to trading profits to determine total taxable profits and the applicable rate.

Is bank interest included in the £50,000 small profits threshold?

Yes. Bank interest is added to trading profits when calculating total taxable profits. If your trading profits are £48,000 and you earn £3,000 in bank interest, your total profits are £51,000 — pushing you into the marginal relief band.

Do I report gross or net bank interest on my CT600?

Gross. Banks pay interest to companies without deducting tax, so the amount you receive is the gross amount. Report the full figure in Box 172 of the CT600.

Can I offset bank charges against bank interest?

If your company earns interest from overseas accounts, there are additional reporting requirements — see our guide on corporation tax on overseas income.

Bank charges related to your trading activities (monthly account fees, transaction charges) are trading expenses — they go against trading profits, not against bank interest income. Bank charges on a non-trading account could be offset against non-trading income, but this is uncommon.

What if my company earned only a few pounds in interest?

You must still report it. There's no de minimis threshold for bank interest. Even £5 of interest should appear on your CT600. In practice, HMRC is unlikely to open an enquiry over a few pounds, but correct reporting avoids any risk.

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