Company expenses of a managing Director: What is no longer a company cost

Ing. Marcel Muráni, LL.M.
Tax Advisor

Company Expenses of a Managing Director: What Is No Longer a Company Cost

A company card is a practical tool. A managing director or business owner often uses it to pay for business trips, a mobile phone, a laptop, lunch with a business partner, parking, accommodation, or other expenses related to the operation of the company.

The problem arises when the company card starts being used without clear rules. Not every expense paid from a company account or with a company card is automatically a tax-deductible business expense. From both a tax and accounting perspective, the key consideration is whether the expense is genuinely related to the business, whether it is properly documented, and whether it does not constitute personal consumption.

It is precisely in relation to a managing director’s expenses that we often encounter situations which may seem straightforward at first glance, but can become sensitive when assessed from an accounting or tax perspective.

A Company Account Is Not a Personal Wallet

The basic rule is simple: the expense must be related to the company’s business activities.

It is not enough that the payment was made from the company account. The company should be able to explain why the expense was necessary, how it relates to its business activities, and which supporting document substantiates it.

In practice, this means that for every expense, it is advisable to consider three questions:

Is the expense related to the company’s business activities?
Does the company have the proper supporting document for the expense?
Is it clear who approved the expense and for what purpose it was used?

If the company cannot answer these questions, the expense may become problematic. This is true even if it was paid for with a company card.

Phone, Laptop, and Internet: Business, Personal, or Mixed Use?

Some expenses are naturally associated with running a business. These include items such as a mobile phone, laptop, internet connection, software, and other work-related tools.

However, with these expenses, the question may arise whether they are used exclusively for business purposes or also for personal use.

If a managing director has a company phone that is used solely for business communication, the situation is different from one where the same phone is also used for personal purposes. The same may apply to a laptop, tablet, camera, or other assets that may also serve personal needs.

It is therefore important for a company to establish clear usage rules.

This does not have to be a complex document. It is sufficient to clearly define who the asset is assigned to, the purpose for which it is used, and how any personal use is handled.

Clothing and Personal Expenses: Not Everything Belongs to the Company

Clothing is a common area of uncertainty. A managing director may purchase a suit, shirt, or pair of shoes for business meetings and expect the expense to qualify as a company cost.

From a tax perspective, however, ordinary business or formal clothing is generally considered personal consumption. The fact that a managing director also wears it during meetings does not automatically make it a tax-deductible company expense.

The situation may be different in the case of workwear, uniforms, or clothing that is visibly and permanently branded with the company’s logo and is not normally suitable for private use.

A similar rule applies to other personal expenses. Cosmetic services, hairdressing, watches, personal accessories, or other private purchases should not be treated as company expenses simply because they were paid for from the company account.

Lunch with a Business Partner: Practical, but Tax-Sensitive

Lunch or dinner with a business partner is a common occurrence in business. It may serve as a meeting, a way to build relationships, or an opportunity to discuss future cooperation.

From a tax perspective, however, it is important to distinguish between advertising, a business meeting, representation, and ordinary hospitality. Hospitality and refreshments provided during business meetings are often considered representation expenses, which are not tax-deductible.

This does not mean that the company cannot pay for such an expense. It simply means that, from an accounting and tax perspective, it may not qualify as a tax-deductible expense.

It is therefore important for the company that its accounting records clearly distinguish between advertising, representation, and expenses that are directly related to generating income.

Company Car and Personal Use

A company car is a separate and sensitive topic. In practice, it is often used for both business and personal purposes, particularly when it is available to a managing director or an employee.

When it comes to a company vehicle, several aspects must be considered: accounting, income tax, VAT, fuel expenses, servicing, parking costs, mileage logs, or another method of tracking its use. If the car is also used for personal purposes, it is not sufficient to simply include it among the company’s assets and automatically treat all related expenses as unproblematic.

The company should clearly define who is permitted to use the vehicle, for what purpose, whether personal use is allowed, and how such use is recorded or taxed.

Personal Payment with a Company Card: What Should Be Done?

In practice, situations may arise where a managing director accidentally pays for a personal expense using a company card. The important thing is that such situations are addressed immediately and handled transparently.

If the expense is personal in nature, it should not remain in the accounting records as a company expense. The company should have a process in place for reimbursing, recording, or otherwise settling such payments.

The issue is not necessarily the individual payment itself. The problem arises when these situations occur repeatedly and the company lacks clear rules regarding who reviews them and how they are handled.

Why an Internal Process Helps

The best way to prevent problems is to establish simple rules governing company expenses.

The company should clearly define:

who is allowed to use a company card,
which expenses may be paid for with a company card,
which supporting documents must be submitted,
who is responsible for reviewing expenses,
how personal payments are handled,
when an expense requires individual assessment,
how travel expenses, representation costs, or larger purchases are approved.

Such a process does not need to be complicated. What matters is that it is practical and easy to apply in day-to-day operations.

If the company uses a digital system, web application, or client portal, it can gain better control over supporting documents, approvals, and expense accounting.

This is also important in light of the ongoing digitalisation of invoicing and preparations for e-invoicing.

Conclusion

A managing director’s company expenses are not simply a matter of who paid with the card. What matters is whether the expense is related to the company’s business activities, whether it is properly documented, whether it does not constitute personal consumption, and whether the company has clear rules in place.

We help clients establish processes that provide better oversight, reduce uncertainty, and help prevent issues related to accounting, VAT, or the tax assessment of expenses.

The above information on this website is intended to give you a basic overview of tax, accounting and legal regulations. It is in no way intended as a guide to their application in practice, which may differ significantly from the legislation in force at any given time. The information on this website does not guarantee legal, accounting, tax or other professional advice or services. As such, the information should not be taken as a substitute for professional consultation with accounting, tax, legal or other advisors. EMINEO PARTNERS shall not be responsible or liable for any discrepancies, omissions or results obtained from the use of this information. All information and examples are provided without any warranty as to their applicability in practice. EMINEO PARTNERS is not obliged to reflect the applicable legislation on the information and examples provided on this website.

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Article summary

Not every expense paid with a company card is automatically a tax-deductible business expense. In this article, we explain why it is important to distinguish between a business purpose, personal consumption, representation expenses, and expenses that may also be used for private purposes when assessing a managing director’s expenses. We look at practical situations involving a mobile phone, laptop, lunch with a business partner, clothing, travel, a company car, and personal payments made with a company card. We also demonstrate why it is beneficial for companies to establish clear rules, document approval procedures, and a digital process for handling invoices and expenses.

At EMINEO PARTNERS, we bring you a clear and practical explanation of the pay transparency methodology and what it means for employers in practice.

FAQ

Is every expense paid with a company card a tax-deductible business expense?

No. What matters is not only that the expense was paid with a company card, but primarily whether it is related to the company’s business activities, whether it is properly documented, and whether it does not constitute personal consumption.

Can a phone or laptop be treated as a company expense?

Yes, if it is used for business purposes. If it is also used privately, the extent of business use should be assessed and clear rules should be established for how such assets are managed.

Can a company claim a managing director’s suit as a business expense?

Ordinary business or formal clothing is generally considered a personal expense, even if the managing director wears it to business meetings. The situation may be different for workwear or uniforms that are visibly branded with the company’s logo and are not ordinarily suitable for private use.

Is a lunch with a business partner a tax-deductible expense?

Not always. Hospitality, refreshments, or gifts provided during business meetings may be classified as representation expenses, which are not tax-deductible. It is therefore important to distinguish the purpose of the expense and maintain proper supporting documentation.

What should be done if a managing director accidentally pays for a personal expense with a company card?

Such a payment should be addressed transparently and as soon as possible. The company should have an internal process for settling personal payments so that they do not remain recorded in the accounting records as company expenses.

How can EMINEO PARTNERS help with company expenses?

EMINEO PARTNERS helps companies establish practical rules for company expenses, document approval processes, accounting and tax assessment of costs, VAT matters, and preparation for e-invoicing. When needed, we can also assist with the implementation of internal policies or the legal review of related documentation.