Your feedback is essential to help us improve - click here to take our 3 minute survey.

Are business card charges tax deductible?

Are business card charges tax deductible?
Image source: Getty Images

We all want to know where we can save a bit of money. And paying less in taxes is one possible way to do that.

When you are self-employed it’s often tough to figure out what expenses are tax deductible, and the complexities of the tax system can often put people off trying to answer it. So, when it comes to your business credit card, can you claim those credit card charges as an expense?

Are credit card charges tax deductible?

The short answer is yes, but note that this article focuses on those people completing a self-assessment tax form. There are different rules if you run a limited company. It’s also very important to note that the information here is aimed at giving you a better understanding of the issue — but taxes do get complex, so questions that involve your specific situation are best discussed with your tax advisor.

That said, according to HMRC you can claim credit card charges as business costs. This means that card charges such as interest or annual fees that are exclusively associated with the running of your business, or incurred for the purpose of your profession, are an allowable expense.

If you use cash basis accounting (where you only declare money when it comes in and out of your business, meaning you don’t pay income tax on money you didn’t receive in your accounting period), you can only claim up to £500 in interest and bank charges.

How do I deduct expenses?

To simplify it a little, if you have to complete a self-assessment tax form, you will need to inform the ‘tax man’ of your business’s turnover. Allowable expenses can be deducted from your taxable profit. So, for example, if your business has a turnover of £50,000 for the year, and you claim £5,000 in allowable expenses, then your taxable profit will stand at £45,000. Credit card charges are classed as an allowable expense.

If you need to determine how much interest you have paid over the year for business expenses on a credit card, you can check your monthly credit card statement from your provider. Then you can simply add the amounts together in order to submit the total in your self-assessment tax form.

Business vs personal expenses

It’s important to remember that only the credit card interest that is associated with business expenditure is an allowable expense.

One of the benefits of having a business credit card rather than a personal one is that your business spending is kept separate from your personal spending, making it easier to calculate the amount of interest you have paid over the tax year and therefore what you can claim as an allowable expense.

It is best to keep a record of all your business expenses as proof of your costs. You won’t need to submit this with your self-assessment form, but HMRC may ask to see evidence if it has a query. This is another argument for taking out a business card: A business credit card keeps all your business expenditure is in one place, and your statements can be provided as proof.

Tip: Although credit card charges are tax deductible, it is still best to avoid interest charges on credit cards if possible. If you are looking to get a business credit card, and think you may carry a balance for a short time, then you may want to consider one that has an interest-free period on purchases. This would mean that you could avoid incurring interest charges on your balance for the promotional period, and hopefully pay off your debt interest-free, over a period of time.

Ready to find the credit card that’s right for your business? A great place to start is our list of the top business credit card offers.

Paying credit card interest? Time to switch to a 0% balance transfer card.

If you can’t afford to clear your credit card balance at the moment and are paying monthly interest, then check to see if you can shift that debt to a new credit card with a long 0% interest free balance transfer period. It could save you money.

By transferring the balance of any existing card (or cards) to a new 0% card, you could be debt-free more quickly – since your repayments will go entirely towards clearing the balance of the debt you owe, and not on interest charges.

Discover our top-rated picks for 0% balance transfer credit cards here and check your eligibility before you apply in just a few minutes – it’s free and won’t affect your credit score.

Was this article helpful?

Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.