Are invoice finance fees tax deductible for corporation tax purposes?
The service charge and discount charge paid on an invoice finance facility are treated as business expenses and are generally deductible against profits for UK corporation tax purposes. They are not capital expenditure, so they are deducted in the period in which they are incurred rather than being amortised. Businesses should ensure their accountant records these costs correctly in the profit and loss account, as some bookkeeping systems can inadvertently post finance charges to the balance sheet.
What this means for your business
For a UK small or medium-sized business using invoice finance, the costs associated with the facility are treated as ordinary business expenses rather than capital items. This means the service charge, which covers the administration of the ledger, and the discount charge, which is the interest-like cost applied to funds drawn down, can both be deducted from taxable profits in the accounting period in which they arise. The practical effect is that HMRC allows these costs to reduce the corporation tax liability of the business, in the same way that bank interest or accountancy fees would. Businesses should ensure their bookkeeper or accountant records these charges through the profit and loss account so that the deduction is properly claimed in the correct period.
Key points
- The service charge and discount charge on an invoice finance facility are both deductible as revenue expenditure for UK corporation tax purposes.
- These costs must be recorded in the profit and loss account for the period in which they are incurred, not spread over future periods.
- Invoice finance charges are not treated as capital expenditure, so no amortisation or depreciation treatment applies.
- Incorrectly posting these charges to the balance sheet, rather than the profit and loss account, can result in the tax deduction being missed or deferred.
- Businesses should review their bookkeeping setup when first taking out a facility to confirm that the accounting software is configured to post finance charges correctly.
Common pitfalls
A common mistake is allowing accounting software to post invoice finance charges to a balance sheet liability account rather than to a finance costs line in the profit and loss account. When this happens, the deduction may not flow through to the corporation tax computation, meaning the business pays more tax than it should. Some bookkeeping templates treat all amounts owed to a finance provider as a creditor, which can cause this problem. It is also worth confirming with your accountant that charges are being matched to the correct accounting period, particularly around year-end, when invoices straddle two periods.
Related questions
Can a sole trader or partnership also deduct invoice finance charges against tax?
Yes. Sole traders and partnerships can deduct invoice finance charges as allowable business expenses against their trading profits for income tax purposes. The same principle applies in that the charges must be revenue in nature and recorded in the period they are incurred.
Is VAT charged on invoice finance fees, and can it be reclaimed?
The discount charge, which represents the cost of credit, is generally exempt from VAT under UK rules for financial services. The service charge element may attract VAT depending on the specific structure of the facility, so businesses should check the VAT treatment with their provider and ensure any recoverable input VAT is correctly claimed on their VAT return.
Do invoice finance charges need to be disclosed separately in the company accounts?
Companies are generally required to disclose interest and similar finance charges separately within the profit and loss account or in the notes to the accounts, depending on the size of the company and the applicable reporting standard. Your accountant will advise on the correct presentation under FRS 102 or the relevant framework that applies to your business.
Director, Market Invoice
Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.
Last reviewed: 9 June 2026