If you have a Starling loan (including loans that are part of the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and the Recovery Loan Scheme), your repayments are made up of both interest and loan principal. The interest element is tax deductible, but loan principal repayments aren’t. So to account for this correctly, the Toolkit excludes the actual Starling repayment transaction from Bookkeeping, but instead auto-creates two external transactions:
- For the interest element only, categorised as ‘Interest Payments’ and set to 100% allowable for tax deductibility. If you’re VAT registered, the Toolkit will automatically apply the relevant VAT treatment of ‘Exempt’ for the interest. This external transaction will feed into Tax (sole traders only) and VAT calculations.
- For the principal repayment, categorised as ‘Loan Principal (in & out)’. This external transaction doesn’t feed into tax or VAT calculations.
These external transactions will auto-complete. You should not delete these external transactions - doing so would mean that your bookkeeping will no longer align to the loan repayment activity in your starling account, and will no longer correctly account for your loan repayment.
If you select any of the Pay As You Grow options, then the Toolkit will adjust accordingly.