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While it’s perfectly legal to use your personal credit card for your business expenses, it may not be the best financial option, and you could miss out on the benefits of a company credit card. Here’s what you should consider before you decide.

What’s the difference between a business credit card and a personal credit card?

Business and personal credit cards are both tools that allow you to borrow money from the bank to spend on goods and services. When using either type of card, you’ll typically have to pay interest unless you clear the balance each month.

Even if you choose not to pay off your card in full, you’ll still need to make at least the minimum monthly repayment set out by your card provider. 

If you pay late or miss a payment entirely, you may face additional fees and charges. This will also negatively impact the business’ credit rating, and if you’re a sole trader, it could also damage your own credit score.

However, there are some key differences between business and personal credit cards. Business cards often have higher spending limits, rewards for business spending (such as cashback on fuel) and the ability to give your employees cards. You’ll typically need to give financial information about your company to get one.

Personal cards usually have lower limits, the provider typically designs rewards around personal spending, and your own credit rating determines how much you can borrow and what interest rate you pay. You may, however, benefit from valuable Section 75 protection.

Read more: How to check your business credit report

Can I use a personal credit card for business spending?

There’s nothing to stop you from using your personal credit card for business spending, but there are some pitfalls.

The first is that it might make your business accounting more complex. If your business spending and personal spending are all on the same card, it can be harder to separate your company transactions. This can cause a headache when it comes to doing your company accounts. It could also mean that you miss business expenses that are tax-deductible.

Another thing to note is that while Section 75 of the Consumer Credit Act covers personal credit cards, the act does not apply to transactions over £25,000 that are wholly for business purposes. It also does not apply to limited companies' borrowing. In these situations, you wouldn't benefit from the act's powerful protections if there are problems following your transaction.

What are the advantages of a business credit card?

• It offers a higher spending limit, which is helpful if you need to make large purchases such as expensive equipment

• It can help build your business’ credit rating over time. This may make it easier in the future to successfully apply for other credit, such as a business loan

• If you have employees, you can add them as additional cardholders, so they can make purchases on behalf of the company or charge their business expenses to the credit card

• Many cards have rewards that specifically benefit the business itself, such as money off travel or discounts from vendors

• Keeping your business and personal spending separate makes company accounting and tax returns more straightforward

What are the disadvantages of a business credit card?

• Some business credit cards ask you to sign a personal guarantee, which means that any late payments or defaults also impact your personal credit rating

• You’ll usually have to give company information to qualify, and you might not be eligible if your business has just started

• Business credit cards are often more expensive, with higher interest rates if you don’t pay the balance in full each month

• Some business accounts come with monthly fees unless you meet certain payment thresholds

• You risk running up company debt

• If you give business cards to your employees, there is a risk of misuse. That said, most cards offer some level of fraud protection

Do I need to report personal credit card spending to HMRC? 

If you have employees who are making business purchases on their personal credit cards, which you are then paying off, you might have national insurance and reporting obligations.

If you’re a limited company director, you count as an employee of the business, and this legislation also applies to your spending.

However, HMRC says that you don’t need to report or pay anything if:

• You’ve authorised your employee to make the purchase

• Your employee makes it clear during the purchase that they’re acting on behalf of your business

• The supplier accepts that the purchase is on behalf of your business

• Your employee isn’t making a purchase where different rules apply – e.g. fuel for a company car, parking spaces or incidental overnight expenses

Having a business credit card that is only used for business spending simplifies matters considerably.

HMRC says that if you use a business credit card, Class 1 national insurance contributions are not due if:

• The expenses are allowable business expenses

or

• You purchase goods and services, and the employer gives prior authority to make the purchase. The director/employee explains in advance that the purchase is being made on the employer’s behalf, and the supplier accepts that the purchase is being made on the employer’s behalf.

What should I consider when choosing a company credit card

These are the main factors to consider when choosing the best card for your business

• The interest rate

• The rewards on offer

• Introductory offers such as interest-free periods

• Foreign transaction fees, charges and exchange rates

• Fraud and misuse protection

If you’re giving out cards to employees, consider setting appropriate spending limits for each individual, according to their needs. For instance, your director of finance may need higher limits to make large purchases for the company, whereas an entry-level salesperson may only need lower limits to cover some business travel.

Make sure you have crystal clear expense policies that outline what your employees can use their company credit cards to buy.

You should also regularly monitor the credit card statements, both to check for unauthorised transactions and to ensure that the company is not overspending.

Some card companies let you set up alerts that let you know when you are approaching your spending limit or when payments are due. You might also be able to set up alerts for large or unusual transactions, which can flag both misuse and situations where a fraudster has cloned or stolen an employee card.

Read more:

• How to choose a business credit card

• How to use a business card to collect rewards