Can you claim interest on a business loan or credit card as a freelancer? Loans, overdrafts, lines of credit and cards, mixed use, repayments and where it goes under the IRS, HMRC and CRA rules (US, UK, Canada)

A loan for a new laptop, an overdraft that covers a slow month, a credit card that carries a balance after a big software bill: borrowing has a cost, and that cost is interest. Here's what the IRS, HMRC and the CRA say about claiming interest on money you borrow for your business, why what the money paid for matters more than the kind of loan, what happens when a loan or card is used for personal things too, why repayments don't count, where the interest goes on each return, and what to keep.

General information, not tax, legal or accounting advice. Not written or reviewed by a lawyer or an accountant. The short answer, the side-by-side summary, the steps, the checklist, the wording to copy and all the other wording are ours; the official items come from the US, UK and Canadian government pages linked below. This page is about a self-employed person (a sole proprietor or sole trader) paying interest on money borrowed for the business. It doesn't tell you whether a particular loan counts, what share of the interest is business, or which line or box applies to you, and it doesn't cover mortgages, car loans, the business interest limit form, loan fees spread over several years, leasing or hire purchase in detail, interest on tax, employees, partnerships or companies, VAT, GST/HST or sales tax, US states, Canadian provinces, Quebec, or other countries. Bank and card fees are in our separate guide. Rules change; check the current official pages before you claim. Official pages were read on 2026-10-20.

The short answer

1. US: the small business publication says "You can generally deduct as a business expense some or all interest you pay or accrue during the tax year on debts related to your business." "Interest relates to your business if you use the proceeds of the loan for a business expense." It also says "You can’t deduct on Schedule C (Form 1040) the interest you paid on personal loans." See section one.
2. UK: GOV.UK lists "interest on bank and business loans" among the financial costs you can claim, and says "You cannot claim for repayments of loans, overdrafts or finance arrangements." HMRC's manual adds that the interest must be wholly and exclusively for the business; see sections three and four.
3. Canada: the CRA's interest and bank charges line says "You can deduct interest on money borrowed for business purposes or to acquire property for business purposes." See section six.
4. Credit cards? None of the official pages we read name credit card interest as such. Our reading is that interest on a card balance that paid for business costs is interest on business borrowing in all three countries, and that a card used for both needs a split; see "Where the sources differ".
5. Paying the loan back? Repayments of what you borrowed aren't interest; the UK and Canadian pages say so in plain words. Keep them out of your expenses; see the steps.

On this page

• 1. United States: interest on business debts
• 2. United States: the interest lines on Schedule C
• 3. United Kingdom: interest on bank and business loans
• 4. United Kingdom: HMRC's manual and the cash basis
• 5. United Kingdom: the return notes
• 6. Canada: the interest and bank charges line
• 7. Side by side
• 8. Step by step
• 9. Wording to copy
• 10. Checklist
• Free tools and kits
• Where the sources differ
• When to get advice
• Related
• Sources

1. United States: interest on business debts

• The general rule: "To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business."
• Interest: "You can generally deduct as a business expense some or all interest you pay or accrue during the tax year on debts related to your business." "Interest relates to your business if you use the proceeds of the loan for a business expense." "It doesn’t matter what type of property secures the loan."
• Three requirements: "You can deduct interest on a debt only if you meet all of the following requirements."
  • You are legally liable for that debt.
  • Both you and the lender intend that the debt be repaid.
  • You and the lender have a true debtor-creditor relationship.
• A limit for some: "Certain taxpayers are required to limit their business interest expense deduction." The publication points to the instructions for the limit form; this page doesn't go into it.
• Personal loans. "You can’t deduct on Schedule C (Form 1040) the interest you paid on personal loans." "If a loan is part business and part personal, you must divide the interest between the personal part and the business part." (IRS: Publication 334 (2025), Tax Guide for Small Business, page date 30-Apr-2026).

The publication has its own paragraph on interest on car loans; for the car itself, see the car expenses section of our Schedule C guide. Interest connected with a home office follows the home office rules in its home office section.

2. United States: the interest lines on Schedule C

• Interest allocation rules. Under Lines 16a and 16b, the instructions say "The tax treatment of interest expense differs depending on its type." "Generally, you allocate interest expense by tracing how the proceeds of the loan were used."
• Limitation on business interest. "If you are a small business taxpayer or meet one of the other filing exceptions for Form 8990, follow the instructions under How to report, later, and report all of your deductible interest on lines 16a and 16b."
• How to report. "If you have a mortgage on real property used in your business, enter on line 16a the interest you paid for 2025 to banks or other financial institutions for which you received a Form 1098 (or similar statement). If you did not receive a Form 1098, enter the interest on line 16b." "If you paid interest in 2025 that also applies to future years, deduct only the part that applies to 2025." (IRS: Instructions for Schedule C (Form 1040) (2025), page date 30-Apr-2026).

Our reading: the instructions spell out only mortgage interest; interest on a business loan, line of credit or card isn't a mortgage, so the other interest line is the natural place for it. For the schedule itself, see the expense categories in our Schedule C guide.

3. United Kingdom: interest on bank and business loans

• Running costs: "If you’re self-employed, you can only claim for costs related to business purchases, including:" The list includes "financial costs, for example insurance or bank charges"
• Business and personal use: "You can only claim allowable expenses for the business costs." (GOV.UK: Expenses if you're self-employed, page date 2024-11-08).
• Bank, credit card and other financial charges: "You can claim for business costs such as:"
  • bank, overdraft and credit card charges
  • interest on bank and business loans
  • hire purchase interest
  • leasing payments
  • alternative finance payments, for example Islamic finance
  "You cannot claim for repayments of loans, overdrafts or finance arrangements." "If you’re not sure whether a business cost is an allowable expense contact HMRC." (GOV.UK: Expenses if you're self-employed, legal and financial costs, page date 2024-11-08).

The first item on that list, bank, overdraft and credit card charges, is covered in our bank and payment fees guide; this page is about the interest.

4. United Kingdom: HMRC's manual and the cash basis

• Wholly and exclusively: "Interest is allowable as a deduction in computing business profits or losses if it is incurred wholly and exclusively for the purposes of the business." "A crucial point is the use made of the funds during the period when the interest accrues." "The use of the funds may change - it is not fixed forever by the initial purpose for which the loan was obtained." (HMRC: BIM45665 - Specific deductions - interest: Must be paid wholly and exclusively for business purposes, page date 2016-04-01).
• Part business: "Where only part of the payment of interest is wholly and exclusively laid out for the purposes of the business then only that part is allowable as a deduction." "A reasonable apportionment of the interest should be made based on the extent of business use of the asset." (HMRC: BIM45670 - Specific deductions - interest: Only part of the payment satisfies the wholly and exclusively test, page date 2016-04-01).
• Money taken out for yourself: "An overdrawn capital account shown in the balance sheet is no more than an indication that a loan or overdraft is being used to fund private drawings." "Similarly a capital account that is not overdrawn does not indicate that loan interest is an allowable deduction." (HMRC: BIM45705 - Specific deductions - interest: Overdrawn capital account, page date 2026-07-01).
• The cash basis: the cash basis used to cap the interest you could claim. GOV.UK's policy paper on expanding it says "This measure removes this interest restriction entirely, allowing businesses that use the cash basis to deduct any amount of interest as long as it is incurred wholly and exclusively for the purposes of the trade." "This aligns the cash basis and accruals basis rules on interest deductions." "This measure will have effect from the tax year 2024 to 2025." (GOV.UK: Expanding the cash basis, page date 2023-11-22).

Our reading: whichever method you use, the question is the same, what the borrowed money is doing for the business. What the cash basis is and how it differs from traditional accounting is in our cash vs accrual guide.

5. United Kingdom: the return notes

• Interest: the notes for the full self-employment pages say, under Box 25 Interest on bank and other loans, "This includes any interest on bank and other business loans, fees for buying goods and hire purchase (do not include any repayments you make against the borrowed amount)." "If you used any part of your loan, overdraft or finance payment for non-business use, put the non-business part of the costs in box 40."
• Card charges: under Box 26 Bank, credit card and other financial charges, they say "This includes any bank, overdraft and credit card charges, hire purchase and lease interest, and alternative finance payments. Do not include capital repayments." (HMRC: Self-employment (full) notes, Tax year 6 April 2025 to 5 April 2026 (2025–26), PDF).

If you use the short pages or give one total for expenses, the boxes are different; our UK Self Assessment guide shows the expense boxes on both versions. Interest connected with working from home is in its working from home section, and for a car, see our UK mileage log.

6. Canada: the interest and bank charges line

• The general rule: "Generally, you can deduct any reasonable current expense you incur to earn business income." "However, since you cannot deduct personal expenses, enter only the business part of expenses on the Form T2125, Statement of Business or Professional Activities." (CRA: Expenses section of Form T2125, page date 2026-08-31).
• Line 8710 – Interest and bank charges: "You can deduct interest on money borrowed for business purposes or to acquire property for business purposes." "You can deduct the interest, but you cannot deduct the principal part of loan or mortgage payments." "Do not deduct interest on money you borrowed for personal purposes or to pay overdue income taxes."
• Fees for getting a loan: for certain fees on a loan to buy or improve business property, the page says "You deduct these fees over a period of five years, regardless of the term of your loan." This page doesn't go into them.
• Workspace in your home: "The interest related to business use of workspace in your home has to be claimed as Business-use-of-home expenses." (CRA: Line 8710 – Interest and bank charges, page date 2026-08-31).
• In the guide: under the same line, the guide says "You can deduct interest on money borrowed for business purposes or to acquire property for business purposes. This includes fishing businesses." (CRA: Guide Self-employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 3 – Expenses, page date 2026-04-16).

The line page also sets limits on interest for passenger vehicles and vacant land; for a vehicle, see the vehicle section of our guide for Canadian freelancers, and for workspace in your home its home section. The expense lines sit in the expenses part of your statement of business or professional activities: see its expenses section. Bank charges on this line are covered in our bank and payment fees guide.

7. Side by side

Our summary of sections one to six, not official wording.

8. Step by step

Our order of steps, based on sections one to six — not an official checklist.

1. List every loan, overdraft, line of credit and card you paid interest on in the tax year.
2. For each one, write down what the borrowed money was used for: business costs, business equipment, personal spending, or a mix.
3. Get the interest charged for the year from each lender’s statements, kept apart from the repayments of what you borrowed.
4. Where a loan or card was used for both, work out the business part of the interest with a reasonable method you can explain, and keep a note of it.
5. Keep bank fees and card fees apart from interest; they go on a different line or box in some countries.
6. Leave out interest on your home and car loans here; those follow the home office and vehicle rules.
7. Check which line or box your tax office uses for interest, and use the same one from year to year.
8. Keep the loan agreements, the statements and your note of how you split anything.
9. Ask the tax office or an adviser if you’re unsure, especially about large loans, money taken out of the business for personal use, or loan fees.

9. Wording to copy

Fill in everything in [brackets]. This is ours, not from any agency, and it's not tax, legal or accounting advice. It doesn't take the place of the statements and records your tax office may ask for.

A yearly record of business interest for your files

Business interest record (my own records, not an official document)
Tax year: [year or period]
Lender and account: [bank / card / lender name], [account reference]
Type: [business loan / overdraft / line of credit / credit card]
Borrowed money used for: [what it paid for]
Used for: [business only / business and personal, business part worked out as: method]
Interest charged in the year: [amount]
Repayments of what I borrowed (not interest): [amount]
Fees charged (kept apart): [none / amount and type]
Line or box used: [line or box]
Agreement and statements kept at: [where]

A request to your bank or lender for an interest summary

Hi [bank or lender],

Could you send a summary of the interest charged on my account [account name or reference] for [period], showing the interest separately from repayments and fees?

[If a yearly interest statement is available as a download, could you tell me where to find it?]

That way my records match my statements. Thanks,
[your name]

10. Checklist

Our summary of the official pages above, not an official checklist.

• Every loan, overdraft, line of credit and card with interest in the year listed
• What each borrowing was used for, written down
• Interest for the year taken from the statements, apart from repayments
• Business part of mixed borrowing worked out, with a note of how
• Bank and card fees kept apart from interest
• Home and car loan interest left to their own rules
• The line or box you used on your return
• Loan agreements and statements kept
• Anything you’re not sure about, checked with the tax office or an adviser

Free tools and kits

• Our free expense tracking guide shows a simple way to keep business cost records.
• Our free expense and receipt log keeps the details for each payment.
• Our paid Freelance Billing Kit by Small Rows (US$12, one-time) can log the interest: the Expenses tab has a date, a category, a description, the amount paid and a "Deductible? (your call)" column, and the category drop-down lets you pick the mortgage interest line or the other interest line from the US list, or the interest on bank and other loans box from the UK list; the kit's own list has no interest category, so type your own. Each row counts in full in the year of its date; to count only the business part of the interest on a loan or card you also use privately, enter a row marked Yes and a row marked No. It doesn't connect to your bank or lender, read statements, separate interest from repayments, decide what counts, pick the line or box for you or file anything.
• All three kits together: the All-Kits Bundle by Small Rows (US$24, one-time).

Where the sources differ

• Credit card interest isn't named: none of the IRS, GOV.UK, HMRC or CRA pages we read name interest on a credit card as such. GOV.UK and the return notes name credit card charges, and all three tax offices tie interest to what the borrowed money was used for. Our reading is that interest on a card balance that paid for business costs is interest on business borrowing in all three countries, and that a card used for both needs a split, but check with your tax office or an adviser if you're unsure.
• Which UK box for card interest: the box for interest on bank and other loans covers business loans, and the bank, credit card and other financial charges box covers card charges and some kinds of interest. Our reading is that either can be argued for card interest, so use one consistently and don't claim the same interest twice.
• Which US line: the instructions spell out only mortgage interest for the two interest lines. Our reading is that interest on a business loan, line of credit or card belongs on the other interest line.
• How to split mixed borrowing: the IRS says to divide the interest, HMRC's manual says a reasonable apportionment, and the CRA says only the business part, but none of the pages we read say how to split a card or overdraft used for both. Our reading is that you should use a reasonable method you can explain, such as tracing what each balance paid for, and keep a note of it.
• Repayments in the US: the UK and Canadian pages say repayments of what you borrowed can't be claimed; the US pages we read for this guide don't say it in those words. Our reading is that only the interest is an expense everywhere, since the publication's rule is about interest; ask an adviser if you're unsure.
• The CRA's personal borrowing sentence: the sentence about money borrowed for personal purposes sits at the end of the line page's item on fishing mortgages. Our reading is that it states the general rule rather than one for fishing alone, since the line's opening sentence limits it to business borrowing anyway.
• The cash basis cap: HMRC's manual page on interest still points to an older cash basis page, while GOV.UK's policy paper says the interest restriction was removed from the tax year it names. Our reading is that the paper reflects the current rule, but it was written before the change took effect and we didn't read the law itself, so check the current HMRC pages before you file.
• Money taken out for yourself: HMRC's manual has detailed pages on an overdrawn capital account, and the US and Canadian pages we read don't cover the same situation. Our reading is that taking more out of the business than it has while it carries a loan or overdraft can cut the interest you can claim, so get advice if that applies to you.
• Page dates and editions: the IRS publication and instructions are the editions for the latest tax year, and the CRA guide is its latest edition; two of the HMRC manual pages and GOV.UK's expenses pages carry older page dates. Our reading is that the rules above are current, but check the live pages and later editions before you file.
• What we did not check: mortgages and home loans; car and vehicle loan interest; the business interest limit form; below-market and related-party loans; loan fees, penalties and prepaid interest; leasing, hire purchase and alternative finance in detail; interest on late tax; the overdrawn capital account pages beyond the lines above; capitalised interest; employees, partnerships and companies; the short self-employment pages line by line; VAT, GST/HST and sales tax; US state rules; Quebec and provincial rules; other countries' rules.

When to get advice

• you borrow a large amount or for more than one purpose;
• a loan, overdraft or card is shared between business and personal spending;
• you take money out of the business while it carries a loan or overdraft;
• you pay fees to arrange, change or pay off a loan early;
• the loan is secured on your home or is for a vehicle;
• you have a partner or a company, or you're registered for VAT, GST/HST or sales tax.

Talk to an accountant or a tax adviser in your country. This page is general information only.

Related

• Bank and payment fees
• Freelance expense tracking
• Schedule C for US freelancers
• UK Self Assessment for freelancers
• Canadian self-employment statement for freelancers
• Cash vs accrual accounting

Sources

• United States: IRS: Publication 334 (2025), Tax Guide for Small Business, page date 30-Apr-2026 · IRS: Instructions for Schedule C (Form 1040) (2025), page date 30-Apr-2026
• United Kingdom: GOV.UK: Expenses if you're self-employed, page date 2024-11-08 · GOV.UK: Expenses if you're self-employed, legal and financial costs, page date 2024-11-08 · HMRC: Self-employment (full) notes (Tax year 6 April 2025 to 5 April 2026 (2025–26), PDF) · GOV.UK: Expanding the cash basis, page date 2023-11-22 · HMRC: BIM45665 - Specific deductions - interest: Must be paid wholly and exclusively for business purposes, page date 2016-04-01 · HMRC: BIM45670 - Specific deductions - interest: Only part of the payment satisfies the wholly and exclusively test, page date 2016-04-01 · HMRC: BIM45705 - Specific deductions - interest: Overdrawn capital account, page date 2026-07-01
• Canada: CRA: Expenses section of Form T2125, page date 2026-08-31 · CRA: Line 8710 – Interest and bank charges, page date 2026-08-31 · CRA: Guide Self-employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 3 – Expenses, page date 2026-04-16

Checked 2026-10-20. Found a mistake? Tell us via Support.