Business vs personal credit card for company spending: the director’s loan trap

Why paying company costs on a personal card causes problems

Most directors of new companies do it. The company has no card yet, a subscription needs paying, and the personal card is in your wallet. Each payment is small and the intention is to claim it back. The problems are cumulative rather than immediate, which is why they are easy to ignore.

There are five. The transactions are not in the company’s records until someone types them in. Every one of them creates a balance between you and the company that has to be tracked and settled. If the settling goes wrong in the company’s favour, there is tax to pay. VAT can be harder to recover. And you have given up the controls, limits and rewards that a business card provides for the purpose. A card in the company’s name fixes the first four and adds the fifth.

I ran a small agency for a while before getting a business card, and the pattern above is familiar. The switch to a company card was less about rewards than about never again reconstructing a quarter of expenses from personal statements. The bookkeeping angle is covered in how the card sync works with Xero, QuickBooks and FreeAgent.

Expense claims and receipts

A company cost paid personally is, in bookkeeping terms, an expense claim. It needs a receipt or invoice, a description, a date, a category and a reimbursement. Done weekly it takes minutes; done quarterly it takes an afternoon and produces errors, because personal statements mix the company’s coffee with your own. HMRC expects business expenses to be supported by records, and a personal card statement with company items circled is a poor substitute for a business account feed.

With a business card the transaction is the record. Capital on Tap’s feed syncs card payments, refunds and charges to Sage, Xero, QuickBooks, FreeAgent and more syncs every 12 hours, the portal lets you attach receipts, and each employee’s spending sits on their own card. There is no claim to make because the company paid in the first place.

The director’s loan account

Every payment between you and your company that is not salary, dividend or a documented expense repayment goes through the director’s loan account. When you pay a company cost personally, the company owes you, and the account is in credit. That direction is safe: the company can repay you at any time without tax consequences.

The trap is the other direction. It is reached in three common ways when personal and company spending share a card. The company pays your personal card bill in full to save the bother of itemising, and the bill included personal items. You reimburse yourself a round figure that turns out to exceed what you were owed. Or you draw money against a credit balance that has already been used up. In each case you now owe the company, the account is overdrawn, and GOV.UK’s rules on what happens when “you owe your company money” apply.

s455 and the nine-month rule

GOV.UK says that if a director’s loan is not repaid within nine months of the end of the Corporation Tax accounting period, the company must “pay Corporation Tax at 33.75% of the original loan”, with a lower rate for loans made before 6 April 2022. The charge is under section 455 of the Corporation Tax Act, hence the name. It is repayable to the company once the loan is repaid, but the reclaim comes later, so the cash leaves the business for a period.

GOV.UK also sets out anti-avoidance rules for repaying a loan and quickly taking another, known as bed-and-breakfasting: if the loan was more than £5,000 and you take another of £5,000 or more within 30 days of repaying it, the repayment may not count. None of that matters if the account never goes overdrawn, which is the point of keeping company spend on a company card. If your director’s loan account is already overdrawn, this page is not the place to fix it; speak to your accountant.

The £10,000 benefit-in-kind threshold

Separately from s455, GOV.UK says the company has extra responsibilities if a director’s loan is more than £10,000 at any point in the tax year, or if you paid the company interest below the official rate. In that case the loan is treated as a benefit in kind, with reporting and Class 1A National Insurance for the company and potential tax for you. GOV.UK’s exemption for beneficial loans applies where the combined outstanding value is less than £10,000 throughout the whole tax year.

A £10,000 overdrawn balance sounds unlikely to arise by accident. It is less unlikely when a company routinely pays a director’s personal card in full and the reconciliation is left to year-end. The way to stay well below the threshold is not to let personal and company spending share a card at all.

VAT recovery

A VAT-registered company recovers input VAT on the strength of a VAT invoice addressed to the company. A personal card receipt for a software subscription bought in your own name, on a personal account, often is not that. Some suppliers will re-issue an invoice in the company’s name; many online ones will not. The VAT on those purchases is then either lost or claimed on weaker evidence.

A business card does not by itself produce a VAT invoice, but a purchase made from a company account, with the company’s billing details, is far more likely to come with one, and the receipt-capture in the portal keeps it with the transaction. For subscriptions in particular, one virtual card per tool makes the supplier, the invoice and the card line match.

Section 75 and consumer protections

This is the one area where the personal card wins outright. Section 75 of the Consumer Credit Act 1974 makes a personal credit card issuer jointly liable with the supplier for purchases between £100 and £30,000 that go wrong. Business credit cards to companies are outside that Act. Capital on Tap’s FAQ is explicit: “No, Section 75 of the Consumer Credit Act 1974 does not apply to Capital on Tap business credit cards, as they are not regulated under this act.”

What a business card still has is the card scheme’s chargeback process. Capital on Tap’s FAQ describes disputes going through Visa chargeback, with the merchant given up to 30 days to respond and the whole process taking 30 to 100 days on average. Chargeback is a scheme rule rather than a legal right, and it does not cover Bill Pay, which is a bank transfer. The broader point is that business-to-business purchases have fewer consumer protections generally, and the card is one part of that. For a single large purchase where Section 75 cover matters to you, a personal card, promptly reimbursed with the invoice in the company’s name, is a defensible choice, and the section on when a personal card is fine says how to do it cleanly.

Limits, rewards and who owns them

A personal card’s limit was set against your personal income. Putting company spend through it uses up headroom you may need personally and can push utilisation on your personal file to levels that lower your personal score. A business card is sized to the business: Capital on Tap advertises limits up to £250,000, though starting limits are often modest and increases take effort, as our credit-limit page describes.

Rewards are the other difference. Cashback earned on a personal card for company spending is yours, but it was generated by money the company then reimbursed, which is an untidy position to explain to an accountant. On a business card the 1% cashback accrues to the company’s account and cash redemptions are paid within two business days to the business bank account. Avios are the exception, because they can only go to the main account holder personally, which raises its own tax point covered in earning Avios on business spend. There is also the 0% non-sterling transaction fee on Capital on Tap, which most personal cards do not match, and unlimited free employee cards with per-card limits for staff, which a personal card cannot offer at all.

Credit-file effects

Company spending on a personal card lands on your personal credit file as personal borrowing. High balances relative to the limit, even if cleared monthly, are visible to lenders at the point the balance is reported, and a run of large statements can affect a mortgage or personal loan application at the wrong moment.

A business card keeps the two files apart. Capital on Tap says: “Yes, we run a soft search on your personal credit file when you apply, so applying won't affect your credit score. We only run a hard search on your business's credit file once you sign your credit agreement”. The company’s borrowing sits on the company’s file, where a well-run account helps rather than hinders, as set out in how to build a business credit score. The link back to you is the personal guarantee, which Capital on Tap requires from a director or major shareholder; it does not put the card on your personal file, but it does make you liable if the company cannot pay, and it is explained in full in our guide to the director’s personal guarantee.

When a personal card is still fine

None of this means a personal card can never be used. Three situations are reasonable.

• A one-off before the business card exists. A new company’s first month of costs. Record each one, keep the receipt, and reimburse yourself from the company account promptly with a reference that matches the claim.
• A purchase where Section 75 matters. A single large item from a supplier you have doubts about. Get the invoice in the company’s name, pay personally, submit the claim the same week.
• A supplier that will not take the business card. Rare with Visa, but it happens. Bill Pay is usually the better answer for invoices, as described in paying HMRC and suppliers by card; failing that, pay personally and claim.

The rule in each case is the same: one-off, receipted, reimbursed promptly and exactly. What goes wrong is the habit, not the instance. Sole traders are a different case altogether, because there is no separate legal person to owe or be owed; their options are in sole trader business credit cards.

How to migrate

Moving company spend off a personal card is a two-week job if you do it deliberately.

1. Get the business card. For a Ltd, LLP or PLC, Capital on Tap’s rules are on the eligibility page; the decision is quick and virtual cards are available before the physical one arrives.
2. List every recurring charge on the personal card. Go through three months of statements and mark the company ones. Subscriptions, domains, advertising, cloud hosting and travel accounts are the usual suspects.
3. Re-point each one. Update the payment method at each supplier to the business card, and while you are there, update the billing name and address to the company so future invoices are addressed correctly. Consider a virtual card per subscription.
4. Settle the director’s loan account. Total the outstanding claims, reimburse yourself in one documented payment, and check with your accountant that the balance is now nil or in credit.
5. Set repayment to full balance. Make the business card interest-free from day one by setting the Direct Debit to clear the statement, as covered in how to avoid business credit card interest.
6. Connect the accounting feed. Link the card to your accounting software so that from the first statement the company’s records are built from the feed rather than from claims.

After that, the personal card goes back to being personal, and the only company money that touches you is salary, dividends and the occasional documented expense. The wider view of how a card fits a limited company’s finances is in business credit cards for limited companies, and the first-hand view of the card itself is in the Capital on Tap review.