Claiming interest charges on CC

sporty121

Hi, Interest charges on my credit card, which is mainly used for business, have never been applied to my annual accounts. I got all my statements which go back 10 years, which total around 14k in interest charges. Can I go back this far and submit this figure in my upcoming accounts. I was hoping to apply around 80% of the 14k as 20% was probably personal use. Any advice greatly appreciated.

nomunnofun

sporty121 wrote: »

Hi, Interest charges on my credit card, which is mainly used for business, have never been applied to my annual accounts. I got all my statements which go back 10 years, which total around 14k in interest charges. Can I go back this far and submit this figure in my upcoming accounts. I was hoping to apply around 80% of the 14k as 20% was probably personal use. Any advice greatly appreciated.

In theory one can claim overpaid tax for the last four years plus the current one. However, what you are suggesting would effectively be amendments to your accounts for the years in question and it would be my view that you may as well attach a sticker which says 'Please investigate me'. It should stand to reason that such amendments would attract more attention than normal and HMRC could well want to know why your records are so incomplete as to omit such an expense.

Still, you can claim but only for the years 2009/10 or later. It is up to you whether you feel that the gain outweighs the risk.

chrismac1

So we have 4 years back claim here, call it £6k in interest and 80% business use.
If your marginal rate of tax is 29% - assuming you are self-employed and not a limited company director so 20% tax and 9% Ni - your tax saving is 1,392.

That's probably worth doing from your point of view but hardly in tax enquiry territory unless you're operating some kind of micro-business.

So if I were your accountant then two, possibly three things, would be happening:

1. We'd be claiming.

2. We'd be doing a schedule of exactly how much we're claiming and this would include an itemised list for the 4 years splitting the bills between business and personal. So the business element might be 78.7% which is a whole lot tougher nut to crack in HMRC towers than 80% which is an obvious finger in the air.

3. We'd consider tax insurance for £90 for the year.

If you have to spend £10 on copy statements and one hour on your spreadsheet for item 2 above, I make that a rate of over £1,300 per hour. Even a supermodel will get out of her bed for that!

It's a substantial gain for minimal risk and a no brainer. See other recent posts by me on the subject of tax investigation risk.

Pennywise

Just be aware that the tax relief on "mixed" interest may not be as straight forward as you suggest.

We've had a few tussles with tax inspectors in similar cases where they've disallowed the straight proportion of business versus private purchases through the card.

They've got into a lot more depth and tried to allocate repayments against charges, i.e. to claim that the underlying balance arose initially from private purchases and that subsequent business purchases have been paid off relatively more quickly, meaning far less interest allowed.

Before you claim, I'd suggest you have a deeper look at the ups and downs of the outstanding balances compared with timing of purchases and repayments. You may get a more accurate figure for the business proportion of the charges, which may even be to your advantage.

A simple proportion according to spending may be too simple and may be open to challenge.

chrismac1

Agree last post. Put yourself in the inspector's shoes, asking the question:

"How have you arrived at the split of business and personal interest?"

Answer 1 - "I estimated it at 80-20." Result - inspector thinks "Here is an open net into which I will calmly sidefoot the ball."

Answer 2 - "I analysed the last 4 years' statements and it comes out at 78.7%."

Result - inspector's little heart sinks.

nomunnofun

chrismac1 wrote: »

Agree last post. Put yourself in the inspector's shoes, asking the question:

"How have you arrived at the split of business and personal interest?"

Answer 1 - "I estimated it at 80-20." Result - inspector thinks "Here is an open net into which I will calmly sidefoot the ball."

Answer 2 - "I analysed the last 4 years' statements and it comes out at 78.7%."

Result - inspector's little heart sinks.

And I agree with your post. The sentence from the op :

'I was hoping to apply around 80% of the 14k as 20% was probably personal use'

was the most worrying aspect. If the records cannot substantiate the claim the risks definitely outweigh the benefits.

Savvy_Sue

And for future use, get a separate credit card for business use only! Even if not in the business name ...

sporty121

Hi guys, thanks for the advice, I haven't started the ball rolling yet, though should I proceed, it will be well prepared to a more accurate analysis of business v personal. I already have the insurance, and the risk of having an investigation doesn't really scare me. I just think, if it's due me, then I am entitled, even if it was an oversight on my part. If the shoe was on the other foot, they'd be hounding the life out of me, with penalties and interest charges also lol.