You’re booking a last minute summer holiday for you and your family. As you’re a little short of cash, can you use your company’s money to pay for it, and if so what are the tax and NI consequences?
The tax angle
As a company owner manager you have control of your company finances. Of course, this doesn’t mean that you should spend its money willy-nilly but there’s nothing wrong in using it to pay for goods and services for your personal use or for your family’s. However, as you’d expect there are usually tax and NI consequences for you and your company.
Your tax position
There are a number of ways in which your tax position is affected if you use company funds to make private purchases.
Company reimburses you. If you arrange and buy your holiday and your company reimburses you, the amount reimbursed counts as earnings and is taxable and liable to NI in exactly the same way as if you had been paid extra salary. This is not a tax-efficient option.
Company pays your bill. You arrange the holiday but your company pays the travel agent, airline etc. direct. This counts as earnings for NI purposes and a benefit in kind for tax purposes. It’s slightly more tax efficient than the previous option because if you’re in self-assessment you won’t have to pay income tax on the benefit until 31 January 2027.
Company arranges and pays. You arrange the holiday in your role as director of your company, and the contract with the travel agent etc. is with your company. This is one step towards being more tax and NI efficient. The arrangement is a benefit in kind so you don’t have to pay NI on it although your company must pay Class 1A NI, but not until July 2026.
Interest-free company loan. This can be the most tax and NI-efficient option. If you borrow from your company to pay for your holiday, and when added to any other borrowing during 2025/26 the total doesn’t exceed £10,000, there’s no tax or NI for you or your company to pay.
Trap. If your borrowing exceeds £10,000 in any tax year it counts as a taxable benefit in kind. However, the resulting tax is relatively modest.
Your company’s tax position
The effect of personal purchases on your company depends on how they are treated for personal tax purposes. Broadly speaking, if the purchase counts as taxable earnings or as a benefit in kind, your company can claim a corporation tax (CT) deduction for the expense, including any employer’s NI contributions. Conversely, if you borrow the money the CT position is neutral, at least initially.
Trap. If you owe your company money after nine months following the end of the financial year in which you borrow it your company must pay tax, known as a s.455 charge , equal to 33.75% of the amount of borrowing still owed.
Tip. If you borrow money from your company now to pay for your 2025 summer holiday, you can have well over a year in which to repay it and dodge the s.455 charge . Example. Your company’s financial year end is 31 March. Money you borrow now can be repaid at any time up to 31 December 2026 to prevent the s.455 charge applying.
You can use your company’s money for personal purchases. The tax and NI consequences depend on how you do it. Getting your company to reimburse you or pay for a holiday that you arranged is not tax or NI efficient as it counts as earnings or a taxable benefit, whereas taking a loan from your company to pay the bill can be entirely tax and NI free.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.