Can My Company Pay Personal Expenses? Tax Implications for UK Directors Explained

When Is a Director’s ExpenseTax-Deductible?

To obtain a corporation tax deduction for an expense incurred by a director (or any employee), the following conditions must be satisfied:

1. The individual must be obliged to incur the expense as part of their employment.
2. The expense must be incurred in the performance of their duties.
3. It must be incurred wholly, exclusively, and necessarily for the company’s business.

This ‘necessity’ test was examined in the First-tier Tribunal case HMRCv Kunjar [2023] UKFTT 538, where it was confirmed that even if an employer imposes certain conditions —such as requiring an employee to live close to the workplace — the related costs (e.g., travel or accommodation) are not necessarily allowable for tax purposes.

Personal Expenses Paid by the Company

If a company pays a director’s personal expense and it doesn’t meet the deductibility conditions above, it will be treated as a taxable benefit —similar to a salary payment. This gives rise to:

• Income tax and National Insurance (NICs) for the director
• Employer’s NICs for the company

The tax treatment will depend on the nature of the payment:

• If the bill is in the director’s name, but paid by the company, HMRC views this as the company settling a personal debt. The director is taxed as if they had received cash, triggering both income tax and Class 1 NICs. The company also pays     employer’s NICs.
• If the bill is in the company’s name, it may still be taxable for the director, either as additional salary or as a benefit-in-kind.

Common Example: Professional Subscriptions

Some expenses — such as membership fees to approved professional bodies — may still be paid by the company and remain tax-free for both the company and the director, even when the invoice is addressed to the individual. These payments are often allowable deductions for corporation tax, provided the professional body is on HMRC’s approved list.

Using the Director’s Loan Account (DLA)

In many owner-managed companies, personal expenses paid through the business are posted to the director’s loan account. If the DLA becomes overdrawn, the director must repay the balance or clear it through dividends, salary, or bonuses.

Important consideration: If personal expenses are regularly paid through the business and posted to the DLA, HMRC may argue these represent an advance of salary — making them immediately liable to PAYE and NICs at the time of payment.

However, where directors declare a dividend at the start of the year and withdraw funds over time, this approach is generally accepted and does not fall foul of HMRC’s advance salary argument. This can also reduce the risk of triggering a beneficial loan interest charge, which arises when a DLA remains overdrawn beyond nine months after the end of the accounting period.

A Practical Tip on Company Credit Cards

If your company provides directors or employees with a credit card, remember: any personal expenses charged to the card are treated in the same way as direct payments by the company. These may still be taxable unless they meet the conditions for business expenses.

Conclusion

While the occasional mix-up between personal and business spending is understandable, regular use of company funds for personal expenses can result in significant tax liabilities. To stay compliant and avoid costly surprises,directors should:

• Clearly separate personal and business transactions
• Maintain accurate records
• Take advice when in doubt — especially when using the director’s loan account to fund personal costs

If you need guidance on managing expenses or navigating HMRC rules, feel free to contact us.

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