Tax vs Loan interest?

Hi All,

Hope all well.

Tax (income/corp) and business loan interest are two 'consequences suffered' by business owners.

From your experience with clients, which of the two do they tolerate most?. It applies to all business owners, including us.

Tax (oh dear!) only comes with profit (nice!) and crucial business loans (thank you!) comes with interest (oh dear!).

In my view tax is more tolerable because we get something out of it in terms of public services and SA302's/Tax overviews that help with mortgage/re-mortgage process. And if it were at all possible that as accountants we could guide business owners to grow their business from dividend reserves (cash) as opposed to loans (where interest is a cost), it would be much more worthwhile for them in many ways. But a fair many business owners seem to have a negative attitude on taxation. As such they'll need to overcome this for growth via dividend reserve to have a chance.

Just my thoughts. Keen to hear yours.

Thanks.

Farouk.

  • From what I've seen, most business owners grumble more about tax than loan interest. Taxes feel like money going out without any direct benefit, even though they do contribute to public services. Loan interest, on the other hand, is often seen as a necessary evil for growth, like a trade-off for immediate cash flow. If you can help clients understand the long-term benefits of reinvesting profits, it might ease some of their tax pain.

  • Thanks for your contribution Andrew. 

  • in reply to Andrew-T

    Thanks Andrew. The other thing with loan interest is that the loan itself is paid off by profits. What I've realised is that because Statement of Cash Flows is not a statutory required financial statement, most business owners do not know how they use their profits. I've come across some who have asked. 'why is the profit on P&L not in the bank account?'. So the education on loans should probably be that they are simply advance drawings of future profits, and just as they are current cash inflows, they are also future cash outflows where the outflows are more than inflow due to interest. So the pressure cranks up on achieving profits. So appreciation of maximising profits and accepting the tax that comes with it is seemingly quite important for small business.