Is bank charges
tax deductible?

Yes. Bank, overdraft and credit card charges on business accounts and borrowing are allowable (GOV.UK). If you use a personal account for the business, you can claim the charges that relate to business transactions, such as a fee for a business payment, but not the account's general fees for your personal banking (GOV.UK).

Bank charges are small but constant: monthly account fees, transaction charges, overdraft fees, foreign exchange charges and card fees. Where they relate to the business, they are allowable. Many sole traders use a personal account for the business, which is allowed, but then the charges have to be split between business and personal use.

Is bank charges tax deductible?

The HMRC rule

Bank, overdraft and card charges, interest on business loans, hire purchase interest and leasing payments are allowable. Repayments of the loan itself are not. Interest on loans has its own quarterly-update field, interest, separate from these charges. The rule comes from Legal and financial costs, Self-employment (full) notes, SA103F.

GOV.UK lists bank, overdraft and credit card charges, interest on bank and business loans, hire purchase interest, leasing payments and alternative finance payments as allowable, and says you cannot claim for repayments of loans, overdrafts or finance arrangements (legal and financial costs). The SA103F notes put bank, overdraft and credit card charges in box 26, with any non-business part in box 41 (SA103F notes).

When you can claim it

• Monthly fees for a business bank account.
• Overdraft arrangement fees and charges on business borrowing.
• Card terminal, payment link and card processing fees for taking customer payments.
• Foreign exchange and international payment fees on business transactions.

When you cannot

• Fees for a personal account used mainly for personal banking.
• Charges caused by personal spending, such as an unarranged overdraft from private purchases.
• Repayments of the overdraft or loan itself.
• Charges on a personal credit card for personal purchases.

What to claim instead

If you use one account for everything, the simplest route is to open a separate business account, even a free one, so the charges are clearly business. Until then, claim only the charges you can link to business transactions and keep a note of how you worked them out.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For bank charges, the deciding rule is bank charges, interest and finance costs: bank, overdraft and card charges, interest on business loans, hire purchase interest and leasing payments are allowable. Repayments of the loan itself are not. Interest on loans has its own quarterly-update field, interest, separate from these charges.

Worked example: a mobile hairdresser

A mobile hairdresser pays £8 a month for a business account, £96 a year, and £410 in card reader fees on £23,000 of card payments. She also pays £60 of overdraft charges, of which half relate to a month when the overdraft was used for a personal holiday. She can claim £96, £410 and £30: £536.

Do you need a business bank account?

A sole trader does not have to have a separate business bank account, although some banks require one for business use under their terms. A separate account makes your records far easier to keep and your charges clearly allowable. Many challenger banks offer free or low-cost business accounts, and their fees are allowable in full.

Card and payment processing fees

Fees charged by card terminal providers, online payment services and payment links are costs of getting paid, and are allowable. Record your sales at the full amount the customer paid, and the fee as an expense, rather than recording only the net amount received. That keeps your turnover right, which matters for the VAT threshold and Making Tax Digital.

Overdrafts

Interest and charges on an overdraft used for the business are allowable. If the overdraft is used partly for personal spending, only the business proportion is. HMRC's manual gives the example of an overdraft used partly to buy stock and partly to buy a private car: only the interest on the stock borrowing is allowable.

Credit cards

Annual fees on a card used only for the business, and interest on business purchases, are allowable. On a card used for both, claim the interest and charges on the business spending only. The purchases themselves are claimed as the expenses they are, such as stock or software, when you buy them.

Foreign currency

If you buy or sell abroad, currency conversion fees and international payment charges are allowable. Exchange gains and losses on business transactions are generally part of your trading profit. Keep the statements showing the sterling amounts actually paid and received.

Where it goes

Bank, overdraft and credit card charges go in box 26 of the full self-employment pages, with any non-business part added to box 41 if included. On the short form, they are part of total expenses. In Making Tax Digital quarterly updates, use the financial charges category.

If you are a landlord

Landlords can deduct bank charges on an account used for the letting business, as other allowable property expenses in box 29 of the UK property pages (GOV.UK). A separate account for rent makes this straightforward.

Where it goes on your return and in MTD

For a sole trader, the allowable part goes under bank, credit card and other financial charges (SA103F box 26 on the full self-employment pages). Under Making Tax Digital for Income Tax, it goes in the same category of your quarterly update, which is the category TapTax files it under when you record the cost.

For a landlord, it belongs in other allowable property expenses (SA105 box 29 on the UK property pages), and in the matching category of a Making Tax Digital property update.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

Most sole traders now use the cash basis, the default from the 2024/25 tax year, which counts a cost when you pay it. On traditional accounting you count it when you incur it, and equipment you keep goes through capital allowances rather than expenses.

How much an allowable cost saves

The value of a deduction is the tax it removes from your profit, not the cost itself. At the basic rate a sole trader saves 26p for every pound of allowable expense, at the higher rate 42p, and in the personal allowance taper between £100,000 and £125,140 as much as 62p. Landlords pay no Class 4 on rental profit, so they save 20p or 40p.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep bank and card statements, loan agreements and annual interest statements, and a note of how you split any account or loan used for both business and personal purposes. Records must be kept for at least five years after the 31 January deadline for the tax year.

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep these records digitally and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028. The MTD requirement checker shows when it applies to you.

Common mistakes

• Claiming personal account fees in full.
• Recording card sales net of fees instead of gross.
• Claiming overdraft repayments as an expense.

Related expenses

This item sits in the bank, credit card and other financial charges category, alongside mortgage arrangement fees and platform and payment fees. The A to Z of expenses answers the same question for every other cost.

TapTax sorts each cost into the right category as you record it, applies the business share where you set one, and keeps the receipts with the figures, ready for your quarterly updates and final return.