Bank Charges and Interest: Claiming as Business Expenses

Banking Costs Are Allowable Business Expenses

Running a business involves banking costs — account fees, transaction charges, and interest on borrowing. These are legitimate business expenses that reduce your taxable profits, yet many sole traders overlook them.

Here's what you can claim and how to do it correctly.

Bank Account Fees and Charges

Business Account Fees

If you have a dedicated business bank account, the monthly or annual fee is fully deductible. This includes:

• Monthly account maintenance fees
• Transaction fees (per payment, per deposit)
• Cash handling charges
• CHAPS and faster payment fees
• International transfer fees
• Foreign currency exchange fees on business transactions
• Statement fees (if your bank charges for paper statements)
• Account set-up fees

Personal Account Used for Business

If you use a personal bank account for business (common among sole traders just starting out), you can claim the business proportion of any charges. If 70% of your transactions are business-related, claim 70% of the monthly fee.

That said, it's generally better practice — and easier for record-keeping — to have a separate business account.

Credit Card Fees

If you have a business credit card, the annual fee and any transaction charges are allowable. Foreign transaction fees on business purchases abroad are also deductible.

Merchant Services and Payment Processing

If you accept card payments from customers, the processing fees charged by your payment provider are business expenses:

• Stripe transaction fees
• PayPal business fees
• Square processing charges
• SumUp fees
• iZettle/Zettle charges
• Direct debit processing fees (GoCardless, etc.)

These fees can be substantial for businesses that process many card payments. Make sure you're claiming them.

Interest on Business Borrowing

Business Loans

Interest on loans taken out for business purposes is an allowable expense. This includes:

• Bank business loans
• Start-up loans
• Equipment finance loans
• Working capital loans

Only the interest portion is deductible. The capital repayment is not an expense — it's paying back money you borrowed, which isn't a cost of your trade.

Your loan statements should separate interest and capital repayments clearly.

Overdraft Interest

If your business account goes overdrawn, the interest charged is an allowable expense. Overdraft arrangement fees may also be deductible.

Hire Purchase Interest

If you buy equipment on hire purchase, the interest element of your HP payments is deductible. The capital element is claimed through capital allowances on the asset itself.

Credit Card Interest

Interest on business credit card balances is allowable, provided the card is used for business purposes. If the card is mixed-use, claim the business proportion of the interest.

Mortgage Interest (Business Premises)

If you have a mortgage on business premises, the interest is deductible. If you work from home, the business proportion of your mortgage interest is claimable under the actual costs method for home working.

What You Cannot Claim

Capital Repayments

Repaying the principal on a loan is not an expense — you're returning borrowed money, not spending it on your trade.

Interest on Personal Borrowing

If you take out a personal loan and happen to use some of the funds for business, only the interest attributable to the business portion is allowable. A personal mortgage on your home is only partially claimable if you work from home using the actual costs method.

Penalties and Late Payment Charges

Bank charges for unauthorised overdrafts, returned cheques, and late payment penalties on your own accounts are generally not allowable. These arise from your own financial management, not from the operation of your trade.

However, this is a grey area. Some accountants argue that occasional bank charges are a normal cost of business. If the charges are minor and arise from genuine business cash flow issues, a pragmatic view might be taken. But systematic or large penalty charges are harder to justify.

Personal Banking Fees

If you have a personal account with a monthly fee that covers personal banking features (travel insurance, cashback on personal spending), this is not a business expense.

Record-Keeping

For banking expenses, keep:

• Monthly bank statements showing fees and interest charges
• Loan agreements and amortisation schedules
• Credit card statements
• Payment processing reports from providers like Stripe or PayPal

Most of these records are generated automatically by your bank. With Accounted, your bank transactions are imported automatically through Open Banking, and Penny identifies and categorises bank charges and interest payments for you.

How Much Could You Save?

A typical sole trader's annual banking costs might include:

| Cost | Annual Amount | |------|--------------| | Business account fee | £120 | | Payment processing (Stripe) | £600 | | Loan interest | £480 | | Overdraft interest | £50 | | Foreign exchange fees | £30 | | Total | £1,280 |

At the basic tax rate, that's £256 in tax savings. At the higher rate, £512. Payment processing fees alone can be a significant deduction for businesses that take card payments.

Common Mistakes

Forgetting payment processing fees. Stripe, PayPal, and other processors deduct their fees before paying you. The fee is still a business expense — make sure it's recorded.

Not claiming bank charges. Monthly account fees are easy to overlook because they're deducted automatically.

Claiming capital repayments as interest. Only the interest portion of loan repayments is deductible.

Not separating business and personal banking. Mixed-use accounts make it harder to calculate the business proportion of charges.

Capture every banking cost automatically. Start your free trial with Accounted and let Penny identify bank charges in your transaction feed.