Spending on Credit or Debit Cards

RyiGarry

Hello! I'm going self-employed next month with a start-up business that has received a few thousand £s of seed funding. It's not likely to start bringing in an income however till Q1 2020.


I have enough savings to cover me to this period, however obviously wouldn't have a regular income during this time. I wanted to keep my credit score as high as possible, as I know I'd take a hit from the loss of my regular income.


I use a bank where transactions are automatically categorised through an app, which would make things a lot easier for me tracking business expenses. However, I was wondering if it'd be better to spend on a credit card (paying off every month) to help my credit score? I'd prefer spending thru my bank as it'd be easier, but would use the CC if it would make a big difference.

eskbanker

As observed frequently on here, there's no point in obsessing about a credit score that's really just a number made up by an agency that isn't seen by any prospective lenders!

In your shoes I'd be concentrating on keeping business-related spend completely ring-fenced from personal finances, using a dedicated business account to avoid breaching the Ts & Cs of your personal one.

Duckyduck

I’d agree the main priority should be to segregate your business expenses from your personal ones. Starling do a business account which would allow you to still use app based banking for it.

Generally spending on a credit card is good, partly as anything over £100 will be covered by S75, but also for cash flow reasons as you delay payment. That can be a slippery slope into debt though, but managed properly it’s a very good option to use, ie don’t pay any interest on it.

Are you intending to take out further financing in the next 6 months or so? If so, probably wise not to rapidly increase your credit balances, if not then the impact on credit score is irrelevant.

Craig1981

Im happy to be corrected, but i believe S75 will not relate to business purchases - if using personal card for business purchases chain with seller/buyer is broken - if using business card, s75 is N/A

as said though, keep business/personal separate and dont worry about your made up score

to show better credit history, using a credit card in your personal spending, petrol, groceries etc and paying off in full each month will help improve your history/file

toothdoctor

Use a cashback/rewards generating credit card. Put all your spending on that and set up a direct debit to pay off the full amount each month. This is what I do and get a bit of 'money for nothing' in cashback just for putting my expenses on a credit rather than a debit card. As another poster said it is also good for cash flow.

eskbanker

Craig1981 wrote: »

Im happy to be corrected, but i believe S75 will not relate to business purchases - if using personal card for business purchases chain with seller/buyer is broken

Not necessarily, in the context of a self-employed sole trader - this has been discussed on a number of occasions before and such threads usually end up quoting (a) the FOS definition of 'individual' (including small unincorporated businesses), which suggests S75 does apply, and (b) a site representing the credit card industry, which (unsurprisingly) suggests it doesn't! The Act itself doesn't clearly specify one way or the other, although some are swayed by the reference to 'consumer' in its name.

https://forums.moneysavingexpert.com/discussion/5955649

born_again

A lot depends on what the purchase is for. If it clearly can be shown as a business purchase, then odd's on card provider will decline S75.
They may also look at other spending and if it can be proved card is used for business purposes, but was applied for as a individual. They could revoke the card.

eskbanker

born_again wrote: »

A lot depends on what the purchase is for. If it clearly can be shown as a business purchase, then odd's on card provider will decline S75.
They may also look at other spending and if it can be proved card is used for business purposes, but was applied for as a individual. They could revoke the card.

Card companies don't typically need a great deal of encouragement to decline s75 claims but their Ts & Cs don't override the customer's legal rights, so even if business use contravenes the card terms it doesn't actually negate s75 rights, based on the FOS's stance about small unincorporated businesses (i.e. where the business isn't a separate legal entity that would break the DCS chain).

chattychappy

Personally I wouldn't worry about separate accounts for your business. Perhaps later when you get transactions going both ways it would be better. Also I wouldn't worry about apps to separate expenses - you can do this yourself! And frankly these things don't work very well anyway because you will have to decide whether £20 at Tesco is subsistence, travel, or capital etc. Exactly how many expenses are you going to have? No doubt some will be cash transactions. Also you have things like apportioning utility bills, use of a room for an office etc. So I'd do it manually.

My advice would be to spend as little as possible. If you get seed finance in, then shove it in an interest bearing savings account until you need it. Collect all receipts (whether you pay by debit card, transfer, credit card, cash) and put them into a spreadsheet. That is the best way of seeing what you're spending against your forecast.

In other words, I agree there needs to be a proper separation between your personal/business life, but this is best realised through proper accounting. No need to run separate bank acccounts/CCs.

For spend, yes use personal CCs. Get as much cashback/airmiles or whatever as you can. It will build a history which may be useful in the future.

If you hope to get your first sale in Q1 2020, play around with your spreadsheet to see what happens if that becomes Q2 or even Q1 2021!

Consider whether it's worth registering for VAT. If your sales are ultimately B2B, then it might be worth registering voluntarily. With "MTD" you may wish to adopt an accounting system from day 1 - eg Quickbooks or whatever. (Personally I use spreadsheet grabbing software but if starting again I might use an accounting package.)

Good luck!

RyiGarry

Thanks everyone for the advice! Gives me a lot to think about... don't suppose anyone has any experience doing company accounts, and whether it's worth paying for an accountant for this or possible to do it myself?

BoGoF

RyiGarry wrote: »

Thanks everyone for the advice! Gives me a lot to think about... don't suppose anyone has any experience doing company accounts, and whether it's worth paying for an accountant for this or possible to do it myself?

What do you mean by 'company' - a Ltd company? If so, defo an accountant.

If sole trader, it really depends on your knowledge.