Credit card fees & interest

Conditions

1. GOV.UK lists bank, overdraft and credit card charges, and interest on bank and business loans, among the financial costs a sole trader can claim. You cannot claim for repayments of loans, overdrafts or finance arrangements.
2. Interest is allowable for a sole trader where the borrowing is used for business expenditure or acquisition of assets used in the business (BIM45700). Where borrowing is used partly for a private purpose, HMRC's own example allows the identifiable proportion of the interest relating to the business use and disallows the interest relating to the private use (BIM45700).
3. For tax years up to 5 April 2024, HMRC's cash basis guidance is different (BIM70000). Under it, interest on cash borrowing was capped at £500 in total for any trade period, but interest on purchases was not subject to that limit where the purchase itself was an allowable expense, and HMRC's examples include credit card interest on allowable purchases (BIM70040). If you are working out one of those earlier years on the cash basis, ask your accountant.
4. An annual fee on a card used for both business and personal spending is a separate question from the interest. The law allows a deduction for any identifiable part or identifiable proportion of an expense which is incurred wholly and exclusively for the purposes of the trade (section 34 ITTOIA 2005). HMRC distinguishes that from an expense incurred for a dual purpose, which should be disallowed (BIM37007, BIM37600). Which applies to a shared card's fee depends on the facts, so keep the statements and ask your accountant.
5. For a limited company, HMRC's Income Tax guidance on interest does not apply: Corporation Tax has separate rules in the loan relationships legislation (BIM45650). Where a company is a party to a loan relationship for the purposes of a trade it carries on, the debits are treated as expenses of the trade (section 297 CTA 2009). Whether a particular card balance falls within those rules is a question for the company's accountant. A company's other running costs, such as card fees, are deducted in working out its taxable profit before Corporation Tax (GOV.UK), subject to the same wholly and exclusively rule (section 54 CTA 2009).
6. Where a company pays a bill that is in law its director's or employee's own debt — for example charges on the director's personal credit card — HMRC calls this the pecuniary liability principle: the payment counts as money's worth and will be taxable as earnings if it comes from the employment (EIM00580).
7. An employee can deduct an expense only where they are obliged to incur and pay it as holder of the employment and it is incurred wholly, exclusively and necessarily in the performance of the duties of the employment (section 336 ITEPA 2003). The Income Tax Act 2007 gives a separate relief for interest on a loan used to buy plant or machinery for use in an employment (EIM32860), but the same Act says that relief is not to be given for interest on a debt incurred by debiting the account of any person as the holder of a credit card.

Common mistakes

• Claiming all the interest on a card that also carries personal spending. Interest on borrowing used for a private purpose is not allowable (BIM45700).
• Claiming the repayment of the card balance as an expense. GOV.UK says you cannot claim for repayments of loans, overdrafts or finance arrangements.
• Assuming that a company paying the director's personal card bill is simply a company cost. Where the bill is in law the director's own debt, HMRC treats the payment as taxable as earnings if it comes from the employment (EIM00580).

What to keep

• Credit card statements showing charges, interest, and the individual transactions — these allow the split between business and personal spending to be evidenced.
• Where a card is used for mixed spending, a written note of how the business share of the borrowing was worked out.

Real-world example

A sole trader uses a dedicated business credit card only for materials and software subscriptions. The card charges a £60 annual fee and he carries a balance between statements, paying £140 in interest over the year. GOV.UK lists credit card charges among the financial costs a sole trader can claim, and interest is allowable where the borrowing is used for business expenditure (BIM45700), so he can claim both. Paying off the balance is not an expense.

Frequently asked