Bank, credit card and other financial charges
for sole traders

Bank, credit card and other financial charges is the category for the cost of banking and finance: account fees, overdraft and card charges, hire purchase and lease interest, and alternative finance payments. It is box 26 on the full self-employment pages. Capital repayments never go here, and the personal part of any charge goes in box 41 if included.

What goes in this category

• Business bank account fees and transaction charges.
• Overdraft and credit card charges on business borrowing.
• Hire purchase interest and lease interest.
• Alternative finance payments, such as Islamic finance, and payment processing fees.

What does not

• Repayments of loans, overdrafts and finance.
• Charges relating to personal use.
• Loan interest, which goes in box 25.
• HMRC interest and penalties.

Items in this category

Business and personal accounts

You can run a sole trader business through a personal account, although some banks' terms require a business account. If you do, only charges that arise from business transactions count. A separate business account keeps the charges clearly allowable and makes Making Tax Digital records much simpler.

Hire purchase and leasing

Hire purchase interest goes here, while the asset gets capital allowances or a cash basis deduction. Lease rentals for equipment are generally running costs, with special rules for cars. Only the interest or finance charge part of a hire purchase payment is a financial charge.

Card and payment fees

Card terminal fees, online payment fees and payment links are costs of getting paid. Record the gross sale and the fee separately. Marketplace commissions can be treated as cost of sales instead, in box 17.

Alternative finance

Payments under alternative finance arrangements, such as Islamic finance products that avoid interest, are treated like interest and allowable in the same way. The equivalent of capital repayments is not allowable.

The cash basis

The cash basis, now the default for most sole traders, deducts financial charges when paid. The old £500 limit on interest and finance costs under the cash basis was removed from April 2024.

Personal credit cards used for the business

If you put business purchases on a personal credit card, the purchases are claimed as the expenses they are, such as stock or tools, on the date you buy them on the cash basis. Interest and charges on the card are allowable only for the part that relates to the business spending. Keeping a separate card for business spending makes this far easier: the whole of its interest and fees then goes in this box.

Foreign exchange and international payments

Fees for converting currency and for sending or receiving international payments are financial charges when they relate to business transactions. If you sell abroad through a platform, the platform may apply its own currency conversion fee, which is allowable too. Record income and expenses at the sterling amounts actually received and paid, so exchange differences are reflected in your profit automatically.

What does not belong here

Loan interest has its own box, 25, so keep it separate. Repayments of the amount borrowed go nowhere on the return. HMRC interest and penalties are never allowable, and charges on personal banking are personal. If your accounts include any non-business charges, put the same amount in the disallowable column, box 41, so the adjustment is visible on the return.

Charges on business savings and deposits

Interest you earn on a business savings account is not trading income: it is savings interest, taxed separately and covered first by your personal savings allowance. Fees on a business savings or deposit account are part of your banking costs. Keep the two apart in your records, so trading income and savings interest are reported in the right places. The starting rate for savings and the personal savings allowance can mean little or no tax is due on the interest.

Records to keep

Keep bank and card statements showing each fee, hire purchase and lease agreements showing the interest element, and payment provider statements. For accounts used for both business and personal purposes, keep a simple note of how you identified the business charges, so the figure can be explained if HMRC asks.

Short form and Making Tax Digital

If your turnover is under £90,000, you can use the short self-employment pages and give one total for expenses. In Making Tax Digital quarterly updates, businesses under the same threshold can send a single expenses figure; above it, financial charges have their own category.

Worked example: a café’s financial charges

A café pays £180 a year in business account fees, £1,250 in card terminal fees, £320 in hire purchase interest on a coffee machine and £90 in overdraft charges. The total of £1,840 goes in box 26. The hire purchase capital repayments do not; the coffee machine gets capital allowances or a cash basis deduction.

Four questions before a cost goes here

1. Was it for the business, and only for it? A cost must be incurred wholly and exclusively for the trade. A cost with a personal purpose that cannot be separated is not allowable at all.
2. Is part of it personal? Where a business part can be identified, such as business miles or business calls, claim that part on a reasonable basis and leave the rest out.
3. Is it a running cost or something you keep? Running costs belong in the expense categories. Things you keep are capital: an expense on the cash basis (except cars), capital allowances on traditional accounting.
4. Is there a specific rule? Some costs are disallowed whatever their purpose, such as fines and client entertaining, and some have their own treatment, such as cars, which always go through capital allowances.

Trading allowance or expenses

Instead of deducting expenses, a sole trader can claim the £1,000 trading allowance against trading income. You cannot claim both, so the allowance only helps when your allowable expenses are under £1,000. If your gross trading income is £1,000 or less, the allowance covers it and you may not need to register. Once your costs pass £1,000, deducting actual expenses gives the lower profit.

This category in Making Tax Digital

Under Making Tax Digital for Income Tax, each quarterly update carries your expenses in the same 15 categories as the full self-employment pages, so this category is one line of every update. Sole traders with qualifying income over £50,000 join from 6 April 2026, falling to £30,000 from April 2027 and £20,000 from April 2028. If your turnover is under £90,000 you can send one consolidated expenses figure instead of the categories, but you still keep the records behind it. The same £90,000 limit decides whether you can use the short self-employment pages (SA103S), which ask only for total allowable expenses.

Cash basis or traditional accounting

Which accounting basis you use changes when a cost in this category counts, and sometimes whether it counts as an expense. On the cash basis, now the default, you deduct costs when you pay them and most things you buy to keep are ordinary expenses (cars being the exception). On traditional accounting, you deduct costs when you incur them and claim capital allowances for things you keep.

The disallowable column

The full self-employment pages have a second column of boxes (32 to 45) for disallowable expenses. If your accounts include something that is not allowable, such as the private share of a phone bill or client entertaining, you put the total cost in the expense box and the disallowable part in the matching box, so the tax calculation adds it back. The short pages (SA103S) simply ask for allowable expenses, so you leave the disallowable part out.

How much an allowable cost saves

Each pound of allowable expense saves a sole trader 26p at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate, in England, Wales and Northern Ireland. Scottish Income Tax bands differ, and the sole trader tax calculator works out your own figure.

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 the invoice or receipt for every cost in this category, with a note of the business purpose wherever it is not obvious, and how you worked out the business share of anything also used privately. From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep digital records and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028.

Common mistakes

• Including capital repayments.
• Claiming personal account fees in full.
• Putting loan interest here instead of box 25.

Every other category

The other 14 categories on the self-employment pages, in box order:

• Cost of goods sold, SA103F box 17
• Construction industry payments to subcontractors, SA103F box 18
• Wages, salaries and other staff costs, SA103F box 19
• Car, van and travel expenses, SA103F box 20
• Rent, rates, power and insurance costs, SA103F box 21
• Repairs and maintenance of property and equipment, SA103F box 22
• Phone, stationery and other office costs, SA103F box 23
• Advertising costs, SA103F box 24
• Business entertainment, SA103F box 24, disallowed in box 39
• Interest on bank and other loans, SA103F box 25
• Irrecoverable debts written off, SA103F box 27
• Accountancy, legal and other professional fees, SA103F box 28
• Depreciation and loss or profit on sale of assets, SA103F box 29, disallowed in box 44
• Other business expenses, SA103F box 30

The A to Z of expenses lists every item and all 23 categories: the 15 self-employment categories and the 8 for UK property.