Excessive credit card penalties and tax

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Credit card companies have been warned by the Office of Fair Trading that their late payment penalties are excessive and do not reflect the true costs banks incur. This follows the Treasury review of banks and their charging systems reported back in October 2004 https://www.accountingweb.co.uk/cgi-bin/item.cgi?id=132594

The OFT are threatening the card issuers with enforcement action to protect consumers if undertakings are not given on fees or otherwise address its concerns.

For tax purposes, are these late payment penalties an allowable deduction? It depends on who is the cardholder, and who forced the late payment error in the first place.

Sole traders and partners will often use private credit cards for business expenditure. Those with cash flow problems will use credit cards as an expensi...

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By SimonP
03rd Aug 2005 10:38

Interest as a deduction - that hasn't been my experience
"Credit card interest will fall into the loan relationship rules, and generally be a straight trading deduction."

Now that is very interesting.

It has been my understanding that such interest is always disallowed as the IR take the view that credit cards are NOT loans due to the fluctuating nature of the balances, which is not a view that I agree with.

Many businesses use credit cards (a) for convenience and (b) because there may not be sufficient funds in the bank account. To my way of thinking, (b) is an alternative funding method and quite clearly a loan to the business and any interest ought to be deductible where business purchases are involved.

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