Using a business card for personal spending: risks, process and accounting

You’re a business owner or company director. You use your business credit card to pay for company expenses, manage spending and extend your cash flow. But can you also use this company credit card to pay for personal expenses? 

 

The very short answer is ‘no, you shouldn’t’. 

 

Using a business card for personal use is not illegal, but it’s certainly not advisable. The purchase you make creates a transaction and takes money out of the company – and this transaction must be accounted for at some point. When your bookkeeper or accountant finds this personal expense against company money, it’s going to cause a problem. 

 

There are a number of reasons for this:

• Most business credit cards will state in their terms of use that the card is for business purposes only. 

• The same restrictions apply whether you’re using a company credit card or a business debit card – both are intended for business use only

• Personal expenses on the company accounts create problems, as you’re using company money to fund your own individual spending. This makes your company accounts incomplete and messy. 

Is using your business credit card for personal use against the rules?

 

Let’s look at a quick example to demonstrate why it’s not advisable to use your company credit card for personal use. 

 

If you pay the electricity bill for your home address with your company credit card, is that against the rules? And will you get into trouble for doing so?

• In the eyes of the law: Using your business card to pay a domestic bill is not illegal – so it’s not a criminal act. But there are key reasons why your company and personal finances should be kept separate. Having separate company and personal bank accounts, cards and finances is strongly advised. 

• In the eyes of your card provider: Most credit card providers and banks will stipulate that their business credit and debit cards are intended for business use only. By ignoring this rule, you break the terms of the card agreement. This could lead to the card provider cancelling your card, leaving you with no line of credit. Check the terms of your card to see what the small print says. 

• In the eyes of HMRC: HM Revenue & Customs will want to see entirely separate receipts and accounting breadcrumb trails for yourself and your business. You and the business are two distinct entities, so any mixing of personal and company spending will cause confusion and may create difficulties when accounting for income tax (personal spending) and corporation tax (company spending). 

Are you a limited company or sole trader? The rules differ

 

Your business’s legal structure has an impact on the rules around personal usage of credit.

 

If you’re a small, one-person business, you may be trading as a sole trader. You may even be trading as an ordinary (or general) partnership. Neither of these is an incorporated legal entity. But if your business structure is a limited company, public limited company (PLC) or limited liability partnership (LLP), your business is incorporated.

 

This distinction between incorporated and unincorporated businesses affects how and when you would use a business credit card.

• Incorporated companies: If your business is a limited company, PLC or LLP, you and the business are two distinct legal entities. Because of this, you must keep your individual finances and credit usage totally separate from your business finances and credit card use. 

• Unincorporated businesses: If you’re a sole trader or in an ordinary partnership, you and your business are a single entity. There’s no distinction between you and your business, so your personal money is also the business’s money. In this situation, there are no rules to stop you from using your business credit card to pay for personal expenses. 

What happens to the money in a limited company?

 

Limited companies and public corporations make up 76.7% of total UK businesses, making them far and away the most common legal structure for a UK business. 

 

If you’re a director in a limited company, it’s vital to understand what happens when you use company money, or company credit, to settle a personal expense.

 

When you spend company money/credit to pay a personal bill, this expense will end up in the director’s loan account section of the company accounts. 

What’s a director’s loan account?

 

A director's loan account (DLA) is an accounting ledger entry that tracks all non-standard financial transactions between you (as a company director) and your limited company. In essence, when you use a company credit card to pay personal expenses, the company is lending you money – remember, you and the company are two separate entities.

 

The DLA logs all the money the company has lent you. You can then treat this loan in three different ways, depending on the nature of the expense. 

 

The loan can be treated as:

• Regular salary (processed via PAYE) – i.e. this money is part of the agreed salary you receive in your role within the company.

• Formal dividend distributions – i.e. this money is part of the annual dividend payment you’ll receive as a company director if the company turns a profit during the period. 

• Reimbursement for legitimate, wholly and exclusively business expenses – i.e. you’ve used your own money to pay a company expense, like the electricity bill for your office, for example. 

What are the tax implications of an unpaid director’s loan account?

If you fail to repay your DLA before the end of the tax year, there can be tax consequences, both for yourself (as a director) and for the company.

1. Benefit in kind rules: If total interest-free director loans exceed £10,000 at any point in the tax year, HMRC treats the saved interest as a benefit in kind (BiK) and taxable income on your P11D. Because of this, you’ll need to pay personal income tax on the BiK and your company will need to deduct Class 1A National Insurance contributions.

2. Corporation tax: Loans left unpaid 9 months and 1 day after the company’s financial year-end trigger a 33.75% corporation tax charge for the business. After you permanently repay the original loan, you can reclaim the corporation tax – but you can’t claim back the interest.

3. Writing off the debt: If the company formally releases or writes off an overdrawn balance instead of collecting repayment, the entire amount becomes subject to personal income tax via self assessment and Class 1 National Insurance via your payroll system.

Accounting for loans to a director (or directors) can become a complex accounting task. And getting it wrong can lead to tax implications for the company. It’s sensible to engage an accountant to manage your accounts and take care of the DLAs.

Why mixing personal and company spending matters beyond tax

 

The potential tax consequences are not the only reason to avoid using your company card to pay for expenses that fall outside of the usual ‘business usage’ rule.

 

Let’s look at a few other possible outcomes:

• Wholly and exclusively test: Mixed personal and company spending weakens the company’s expense record and breaks the rule that this spending must be wholly and exclusively for business use.

• Messier bookkeeping and a harder year-end: Failing to keep your personal and company finances separate makes a mess of your bookkeeping and accounts. This can create complications when balancing the books at year-end. 

• Lenders will spot your poor financial management: Lenders will see the mix of personal and company spending when reviewing statements on a finance application. This can have an adverse impact on loan decisions.

• Separation matters if the company runs into difficulty: If the company goes into liquidation and the loan is written off, you’ll be liable to pay income tax and NICs on the total balance in your DLA.

• No Section 75 attribution to business credit cards: Section 75 of the Consumer Credit Act 1974 generally does not protect business credit card transactions. Credit agreements issued to limited companies fall outside consumer credit regulations, so there would be no joint liability for your personal purchases made on company cards.

What counts as business spending?

 

It’s important to understand when an expense should be flagged as personal spending or business spending. But what exactly do we mean by ‘business spending’?

 

Business spending is anything that can be classed as clear business costs; for example, paying the rent on your office space, buying supplies for the stationery cupboard, or paying the monthly subscription for your cloud accounting software. Some of these expenses may be tax-deductible, so you need clear records to make any claims against these expenses.

 

Personal spending is paying bills or invoices that relate solely to your own finances; for example, your home telephone bill, your weekly food shopping bill, or paying a hotel bill when you’re on a non-business break. 

 

You need to record and track your business expenses, so they appear in your company accounts and can be accounted for at year-end. It’s also a good idea to track your personal expenses too, so you have a breadcrumb trail of all spending. But remember that your business and personal finances should be kept 100% separate at all times. 

You’ve used your company credit card for personal spending: what happens now?

 

It’s common for new business users to accidentally use their company credit card to pay for personal expenses. If you’re new to being a business owner, you may not be aware of the rules, or you may be unaware of the need to keep business and personal finances separate.

 

If you’ve used your company card in error, there’s no need to worry. This financial mistake can usually be very quickly corrected by your in-house or external accountant. 

 

The best way to resolve the issue is to:

• Flag the error with your accountant and explain that you’ve used your company credit card for personal expenses by mistake.

• Locate the transaction in your accounts and make sure your accountant logs this ‘loan’ in your director’s loan account (DLA).

• Repay the money to the company, so you clear the balance of your DLA, or work with your accountant to treat the loan in the appropriate way before year-end. 

In most cases, resolving the situation is a bookkeeping correction, not a crisis.

How to avoid the problem: keep your finances separate

 

Once you know the rules around the separation of business and personal expenses, it’s fairly simple to avoid messy spending between your accounts.

 

To avoid having any financial, accounting or tax-related issues, just follow these simple steps:

• Ensure your company credit cards are only used for wholly business-related expenses

• Have individual cards for each person and put limits in place, so spending is directly attributable

• Create a clear internal policy regarding the use of company cards for expenses

• Reconcile your expense transactions monthly, rather than at year-end.

By sticking to these guidelines, you’ll reduce the potential for personal expenses ending up on company ledgers. And you’ll also make your bookkeeping and accounting processes clearer and easier to manage for your accounting team.

How Funding Circle can help you manage your spending

 

A business credit card that’s designed for seamless management of your company expenses is an incredibly helpful tool, helping you easily keep track of your business costs.

 

The Funding Circle Cashback business credit card is the ideal way to manage your business expenses, with full visibility of all spending across the business.

 

The Cashback card offers

• No annual fee or hidden costs

• Up to £250,000 credit available

• Up to 42 days interest-free credit

• Rates from 14.9% per year and representative 34.9% variable

• Cashback on all company spending (2% for the first 6 months, up to £2,000, then 1% for the lifetime of the card)

• Unlimited employee cards available at no additional cost

• Complete visibility of your spending through the Funding Circle app

To be eligible for the Cashback business credit card, your business needs to:

• Be based in the UK

• Be a limited company

• Have at least 1 year of trading history

• Have an annual turnover of at least £30,000

Looking for a straightforward way to manage your business expenses. The Funding Circle Cashback business credit card has you covered.

 

As a director, you will need to give a personal guarantee against any spending on your Cashback card. But our application process only carries out a soft search on your credit history, meaning there’s no negative impact on your personal credit score. 

 

Apply for a Cashback card today

 

The information provided here is for general informational purposes only and should not be construed as professional advice. Please consult with a qualified tax or accounting professional regarding your specific circumstances.

FAQs 

Is it illegal to use a business credit card for personal use?

 

No, it’s not illegal. But it’s not advisable to use a business credit card for personal expenses.

 

What happens if you accidentally use a company card for a personal purchase?

 

You will mix your personal finances with your company finances, which can get messy. By mixing both business and personal expenses, you can create accounting issues and tax consequences. 

 

Can a director use a company credit card for personal expenses?

 

Yes, a company director can use their company credit card to cover personal expenses. But this will generate a ‘loan’ in the director’s loan account within the company’s accounts. This must be repaid before year-end. 

 

Can you cash out or use business credit card rewards personally?

 

Extracting cash or benefits personally counts as taking money from the business. It must be processed as taxable salary (PAYE), a declared dividend or credited against your director's loan account (DLA). 

 

Does personal spending on a company card affect your business credit score?

 

Not directly, as long as statement bills are paid on time. However, it can indirectly harm your business credit score if it strains cash flow, causes missed card/supplier payments, or creates a heavily overdrawn director's loan account on filed accounts.

Disclaimer

08/09/26 – While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.