Summary. Business credit card interest is tax deductible for business expenses. However, HMRC’s guidance is less clear on personal credit card charges incurred for business purposes. These charges may not be considered a company expense, complicating tax deduction claims. Thomas Nock Martin advises using business credit cards solely for business purchases to simplify tax deductions.
It’s human nature to want to save money whenever realistically possible, and paying less in taxes is one way to achieve that. Figuring out what expenses are tax deductible, and the complexities of the tax system, can be a frustrating process. So, is business credit card interest tax deductible?
Is Business Credit Card Interest Tax Deductible?
The short answer is yes, business credit card interest is tax deductible. But, the problem is HMRC’s guidance focuses mainly on purchases with company credit cards. What happens if you use a personal credit card and want to claim back the charges?
Purchase Made on Behalf of the Employer
The general rules states that expenses incurred by an employee, in the course of doing their job, are not liable for tax and NI. This is due to the fact they are exempt employment income. However, if a purchase is made on a personal credit card on behalf of the company, HMRC considers this not to be employment income. Instead, the employee acted as a buying agent for the employer. Therefore, the cost was always that of the business and not the employee. However, the question still arises about the credit card interest and charges, and whether these are tax deductible?
Credit Card Fees for Businesses
HMRC’s guidance regarding personal credit card fees, obtained through business purchases, is unclear. Yes, tax and NI-free reimbursement is possible for the cost of the item/s. However, this rule can’t be applied to the credit card charges. The reason being, credit card charges are not a company expense. Instead, they are the expense of the person whose name is on the card, despite being a result of a business purchase.
Small Business Expenses
HMRC states that an expense incurred as a result of a job which is then reimbursed, is earnings. These will be either exempt or taxable earnings. The exemption inclusions are wide ranging, but cover business travel costs and general expenses incurred by the employee, as a direct result of doing their job. The problem is personal credit card charges do not sit comfortably in the exemption box. But of course, it does not seem fair that the employee is responsible for the charges that were only incurred through the course of doing their job.
Business Credit Card Expenses
It’s important to remember that if you do claim tax for the credit card interest, it is only the interest that is associated with business expenditure that is an allowable expense. Having a credit card for business purchases only will make it easier to calculate the amount of interest you have paid over the tax year. Therefore, it will help to inform you about what you can claim as an allowable expense.
Credit Card Interest Tax Deductible | Our Advice
As there is no clear guidance from HMRC regarding reimbursement for personal credit card charges, the general rule must apply. Our advice is that the company should apply PAYE tax and Class 1 NI to the reimbursement. Tax deductible expenses for small business and understanding credit card fees for businesses can be complex. If you need to speak to someone about your business, then call us today on 01384 261300. Alternatively, you can visit our website for more information. We never want our clients to pay more tax than they need to. Thomas Nock Martin specialises in small business tax so get in touch to see how we can help you.
If you are looking for more information about if business credit card interest is tax deductible, head to our website today. You may also be interested in our previous blog on VAT partial exemption.
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