Contractors' Questions: Can I use my credit card to buy company kit?

Contractor's Question: I know that ideally I should purchase business items, such as PCs, through my company bank account and credit card, but I only have a Visa Electron card which isn't widely accepted. In the eyes of the tax authority, is it acceptable to purchase assets on my own credit card and do the receipt/refund transaction with the company, or do I have to do this through a company bank card?

Expert's Answer: In an ideal world, all business purchases would be made with company cheques or company business cards. However, there are occasions when an employee/director buys a business item and the only "credit card" they have is a personal card.

HM Revenue & Customs will expect there to be a "clear audit trail" so they will expect to see evidence of the original purchase (say a laptop for £500), and usually the receipt and the credit card/ bank statement will be sufficient. The second part of the transaction will be the payment by cheque or bank transfer from the company business account to the director's personal account for the same amount.

There will be two areas that HMRC will be interested in. First, was the payment from the company to the director for the same amount (£500)? If a higher amount is paid, say £600, then the additional amount of £100 is classed as
additional pay. The second point - was the purchase really for the company? HMRC will expect to see evidence that the laptop is used as a business asset and hasn't been taken home for the director's family to use.

With the correct evidence and an audit trail, HMRC will usually be satisfied that no further action is necessary. However without the evidence, HMRC may take the view it was really a private purchase reimbursed by the company.

The expert was Ray McMahon, a former inspector of taxes for the Inland Revenue, and founder of Consultant365.com , a contractor advisory.