HMRC has launched a new campaign looking at the personal tax affairs of company owners, with particular attention being paid to how money and assets move between a limited company and its directors and shareholders.
And there’s one area we think every company director should pay particular attention to: using company money to pay for personal expenses.
Your company money isn’t your money!
It’s an easy mistake to make, especially when you’re the sole director and shareholder of your business.
After all, it’s your company. You’ve worked hard to earn the money, and you’re the one making all the decisions.
But here’s the important bit.
A limited company is a separate legal entity. The money sitting in its bank account belongs to the company, not you personally.
That means you can’t simply use the company bank account or credit card to pay for personal purchases and treat them as business expenses.
We’re talking about things like:
- Personal shopping, clothing and household purchases.
- Family meals or holidays.
- Personal bills and subscriptions.
- Home improvements or repairs that aren’t business-related.
- Other purchases that have no genuine business purpose.
Paying for something through your company doesn’t automatically make it a business expense!
So what happens if you do?
Not every personal payment creates an immediate tax bill, but it does need to be recorded and dealt with correctly.
Depending on the circumstances, personal spending paid for by the company might be treated as:
- A director’s loan: Money you’ve effectively borrowed from your company and may need to repay.
- Salary or a taxable benefit: Which could result in additional Income Tax and National Insurance.
- A dividend: But only where sufficient distributable profits exist, and the payment is properly declared.
There can also be additional Corporation Tax consequences if a director’s loan remains outstanding beyond the relevant deadline.
The important thing is to make sure these transactions are identified and accounted for correctly, rather than simply being included in the company’s expenses.
What is HMRC looking at?
HMRC’s latest campaign is targeting individuals identified at Companies House as Persons with Significant Control (PSCs).
In simple terms, these are generally people who own or control more than 25% of a company’s shares or voting rights, or otherwise have significant influence over the business.
HMRC is particularly interested in transactions between companies and their owners, including:
- Money borrowed from the company.
- Personal expenses paid by the business.
- Company vehicles, property or other assets used privately.
- Assets transferred between the company and its owners.
- Certain transactions involving company shares.
HMRC is writing to selected individuals asking them to review their personal tax affairs, including their 2025/26 Self Assessment returns and any potential errors from previous years.
What happens if you receive a letter?
Firstly, don’t panic!
Receiving one of these letters doesn’t automatically mean you’ve done anything wrong or that HMRC has opened a formal tax investigation. However, it is an opportunity to check that everything has been reported correctly. HMRC is asking recipients to correct any errors by 31 January 2027.
If you’re satisfied that your tax affairs are correct, you don’t need to respond to the letter. However, ignoring genuine mistakes could prove costly. Errors identified later by HMRC could result in additional tax, interest and potentially higher penalties.
Our advice? Keep business and personal spending separate
The simplest way to avoid unnecessary complications is to keep a clear distinction between your company’s money and your own.
If you need to take money out of your company, make sure it’s done in the appropriate way, whether that’s through salary, dividends, repayment of money you’ve previously lent the company, or a properly recorded director’s loan. And if you accidentally use the company card for something personal, don’t ignore it or try to make it fit into a business expense category.
Tell your accountant so it can be recorded correctly.
It’s also worth remembering that just because an expense has been paid by the company, or even included in the bookkeeping, doesn’t mean HMRC will accept it as an allowable business expense.
The bottom line
Running your own limited company gives you plenty of flexibility, but it also comes with responsibilities.
Your business and personal finances need to be kept separate, and money taken from the company must be properly accounted for.
A little care now could save you an expensive headache later.
If you’re unsure whether something you’ve paid for through your company is allowable, or you’ve received one of HMRC’s letters, get in touch with the Brooks Accountants team before making any changes to your tax returns.
We’re here to help you get it right.