Bank Charges and HMRC: What Self-Employed People and Landlords Can Claim

Bank charges are tax deductible for self-employed people when they relate to the business. HMRC lists bank, overdraft and credit card charges as allowable financial costs for sole traders. Landlords can claim them too, but only to the extent the charges are incurred wholly and exclusively for the property business. Loan and overdraft repayments are not charges and cannot be claimed. This article explains what falls on each side of that line, how to treat a mixed personal and business account, whether VAT can be reclaimed, and how to keep records that stand up.

TL;DR

• Business bank, overdraft and credit card charges are allowable expenses for sole traders and reduce taxable profit.
• Repayments of loans, overdrafts and finance arrangements are not allowable. Interest and charges on them can be.
• Landlords must show the charge was incurred wholly and exclusively for the property business, or claim only the identifiable business part.
• Charges on a mixed personal and business account need a reasonable split, and the basis for the split should be kept.
• Most bank charges are exempt from VAT, so there is usually no VAT to reclaim on them.

Table of Contents

• What counts as a bank charge for tax
• What can be claimed and what cannot
• Bank charges for landlords
• Using one account for personal and business money
• Can VAT be reclaimed on bank charges?
• Bank charges versus other costs that look similar
• How to record bank charges
• Common mistakes
• Our perspective
• Keeping charges and receipts in one place
• FAQ
• Sources

What counts as a bank charge for tax

A bank charge is a fee a bank or card provider makes for running an account or processing a payment. In everyday business life these include:

• monthly or annual account fees on a business current account
• fees for overdraft arrangements and for going overdrawn
• charges for failed or returned payments
• fees for international transfers and foreign currency payments
• credit card annual fees and charges
• card payment processing fees taken from sales

HMRC groups these under financial costs. The GOV.UK guidance on legal and financial costs says sole traders and individual partners can claim business bank, overdraft and credit card charges. The same page lists interest on bank and business loans, hire purchase interest, leasing payments and alternative finance payments as claimable business costs.

The general overview of self-employed expenses explains the effect. Allowable expenses are deducted from business income to arrive at taxable profit. A claim for £100 of bank charges does not reduce the tax bill by £100. It reduces profit by £100, and tax is then worked out on the lower figure at the rate that applies to that person.

What can be claimed and what cannot

The line is between the cost of using finance and the money borrowed. HMRC allows the first and does not allow the second. The table below sets out common items for a sole trader.

The boundary on drawings matters. HMRC states that personal withdrawals are not allowable expenses. Moving money from the business account to a personal account is not a cost of the business, and any fee that is purely personal stays outside the claim.

Interest and charges are different from repayments

A loan repayment normally has two parts: the money borrowed and the cost of borrowing it. Only the cost of borrowing is a business expense. HMRC’s capital versus revenue toolkit notes that finance payments can contain both capital and revenue elements. It advises reviewing finance amounts posted to the profit and loss account and identifying their exact nature, so that capital amounts are not deducted as revenue costs.

In practice this means the bank statement line for a loan payment should not be claimed in full. The interest portion, shown on the loan statement, is the part to record as an expense. Arrangement fees on a business loan are a separate item and should also be identified on their own.

Bank charges for landlords

Property income has its own rules. HMRC’s Property Income Manual applies the wholly and exclusively test: expenditure is deductible only when it is incurred wholly and exclusively for the property business. For bank charges, this means:

• A fee on an account used only for rent receipts and property costs is a clear claim.
• A fee on a personal account that also receives rent is not wholly for the property business. Only an identifiable business part can be deducted.
• Charges linked to a mortgage or loan need to be checked for the nature of each item, in line with the finance guidance above.

The manual makes the test one of purpose. Private or domestic spending fails it, while a separately identifiable property business component can qualify. The same manual adds that the reason given by the taxpayer is not necessarily decisive. HMRC can look at documents, agreements, meeting notes and other records to judge what the real purpose was.

A landlord who keeps rent and property costs in a dedicated account makes this test easy to meet. A landlord who runs everything through a household account has to do more work to show what belongs to the property.

Using one account for personal and business money

Many sole traders and small landlords use a single account. This is allowed in the sense that there is no legal rule requiring a separate business account for a sole trader. Our article on whether a sole trader needs a separate bank account covers that question. The tax issue is that only the business share of any charge is claimable.

HMRC’s own example for a mixed-use cost is a mobile phone. If a bill is £200 and £70 relates to business calls, the business share is £70 and the £130 personal part is excluded. The same logic applies to bank charges. If a flat account fee covers both uses, a reasonable split is needed, and it should be applied the same way each year unless the facts change.

For borrowing, HMRC’s Business Income Manual takes the same approach. Where one facility serves both private and business purposes, such as an offset account, a reasonable apportionment of interest between the two is required. The manual also says that interest on an account used solely for business purposes is an allowable deduction in the accounts.

A simple way to set a split:

1. List the transactions in the account for a typical month.
2. Work out what share are business income and business payments.
3. Apply that share to fixed fees, and claim charges linked to a specific business payment in full.
4. Write down the method and the date it was set.

For wider guidance on telling business and private costs apart, see the Ledgery article on personal and business expenses for sole traders.

Can VAT be reclaimed on bank charges?

In most cases there is no VAT to reclaim. HMRC’s VAT notice on finance says that, in general, financial services are exempt from VAT. For current, deposit and savings accounts, many of the charges made by banks are exempt. The notice names a few exceptions, such as the issue of certain financial certificates and the extra cost of special printing of cheque books and paying-in books.

The practical result is that a normal monthly account fee or a returned payment fee carries no VAT. The full amount is the expense. Sole traders and landlords covered by Ledgery’s income tax tools do not deal with VAT in the software, so VAT questions belong with HMRC’s guidance or an accountant.

Bank charges versus other costs that look similar

A few items are often confused with bank charges.

Bank interest

Interest on a business loan or overdraft is a financial cost and can be claimed, separately from the capital repaid. Interest on an account used solely for business is allowable. Interest on a mixed account is apportioned.

Overdraft costs

Fees and interest on a business overdraft are claimable. The overdraft balance itself, and any payment that reduces it, is not an expense.

Payments to HMRC

A payment to HMRC is not a bank charge. Income tax and National Insurance paid are not business expenses, because they are taxes on profit and personal liabilities. Only a genuine bank fee for making a payment, if one is charged, would be a bank charge.

Cash basis and accruals

When a charge is recorded can depend on the accounting method used. Under cash basis the charge is recorded when it leaves the account. The Ledgery guide to cash basis and accruals for sole traders explains how the choice affects timing. For bank charges the difference is usually small, since most are taken at the point they are charged.

How to record bank charges

Each charge needs a record that shows the date, the amount and the business reason. Bank statements are the main evidence, but a statement line can be vague, for example a single entry that bundles several fees. A monthly fee summary or a bank’s fee schedule fills that gap.

A workable routine:

1. Download or save statements for every account used in the business each month.
2. Mark each fee line as business, personal or mixed.
3. Keep loan statements so that interest can be split from capital.
4. Keep card processor statements, which show fees deducted from sales.
5. Keep a note of any apportionment method, with the figures behind it.

HMRC’s property guidance confirms why notes matter: documents, agreements and other records can all count as evidence when the purpose of spending is tested. Records that were made at the time carry more weight than an explanation written years later.

Reporting the figure

Allowable bank charges go into the financial costs category of the expenses for the business. Under quarterly reporting, each update carries income and expense totals for the period, so the charges are included in the quarter in which they arose. Keeping a running record through the year avoids a search through twelve months of statements when an update is due.

Common mistakes

• Claiming the whole loan payment instead of the interest only.
• Claiming drawings or personal transfers as costs.
• Claiming all fees on a joint household account without a business share.
• Leaving out card processing fees because sales are recorded net of them.
• Failing to keep any note of how a mixed split was worked out.
• Treating a fee for paying tax as a tax deduction. Only a real bank fee is a bank charge, and the tax itself is never an expense.

Our perspective

Bank charges are small items, but they are among the easiest to miss. A fee of a few pounds each month is rarely worth a search through statements at year end, so it is often left out. Over a year those fees add up, and under quarterly reporting they belong in the quarter in which they were paid.

We built Ledgery around the idea that the record should be made when the cost happens. Receipts are scanned and sorted as they arrive, income and expenses are stored in one place, and quarterly updates are generated from those records. Open Banking feeds mean that bank fees can be brought in alongside the rest of the activity instead of being retyped from statements.

The same platform covers self-employment and property income. A person with both a trade and a rental can keep each set of records separate, which supports the wholly and exclusively rule for property costs. The records stay under the user’s control, accountants can be given access, and the filing to HMRC is made by the user.

The result is a simple habit: charges are recorded once, close to the date, and are ready when an update is due.

The Ledgery Team

Keeping charges and receipts in one place

Ledgery is income tax software for UK sole traders and property owners. It scans receipts, stores income and expense records, creates invoices, sends deadline reminders and prepares quarterly updates for HMRC. The first quarter is free, and the plans are Simple, Grow and Pro. Details of each plan are on the Ledgery website.

Ledgery supports sole trader and property income. It does not support limited companies or VAT. The article on receipt scanning for MTD shows how scanned receipts become records ready for a quarterly update.

FAQ

Are bank charges tax deductible?

Yes, for self-employed people they are when they relate to the business. HMRC lists business bank, overdraft and credit card charges as allowable financial costs. Landlords can claim them where they are incurred wholly and exclusively for the property business. Private charges are not deductible.

Can I claim charges on a personal account I use for business?

Only the business share can be claimed. A reasonable split based on how the account is used is needed, and it should be recorded. HMRC’s own mixed-use example splits a phone bill between business and personal calls, and the same approach applies to account fees.

Can I claim loan or overdraft repayments?

No. HMRC does not allow repayments of loans, overdrafts or finance arrangements as expenses. The interest and fees on them can be claimed if they relate to the business. Check the loan statement to separate the two.

Is there VAT on bank charges that can be reclaimed?

Usually not. HMRC’s guidance says that financial services are generally exempt from VAT, including many charges on current and savings accounts. A few items, such as special cheque book printing, are exceptions.

Sources

• Expenses if you’re self-employed: legal and financial costs (GOV.UK)
• Expenses if you’re self-employed: overview (GOV.UK)
• PIM2010: Deductions, general rules (HMRC Property Income Manual)
• BIM45695: Specific deductions, interest (HMRC Business Income Manual)
• Capital versus revenue expenditure toolkit: financial costs (GOV.UK)
• VAT Notice 701/49: finance (GOV.UK)

Recommended

• Personal vs Business Expenses: What Sole Traders Can Claim
• Separate Bank Account for a Sole Trader: Do You Need One?
• MTD ITSA for landlords: your 2026 compliance guide
• Making Tax Digital guide for sole traders and landlords