If you have a large chunk of self-assessment income tax due this weekend, there is an upside.
This is the first self-assessment payment deadline since HMRC slashed its credit card fee to roughly 0.4%.
One of the biggest jokes, since the EU cap on Visa and MasterCard fees came into effect last December, was that the Government itself was ignoring them. The fee for paying your tax with a credit card actually rose in January to 1.5%.
The great news is that this move was reversed in early April. HMRC is now offering ‘interchange plus’ when calculating your credit card fee. That may sound like a very boring statement but, for many of us, it was the most exciting news to hit the miles scene in a while.
These fees apply when paying self-assessment tax, VAT, employers NIC / PAYE or any tax collected by HMRC.
For a self-employed person such as myself, this will be a fantastic miles and points generator. I still have the BMI Platinum MasterCard which earns 2.5 Avios per £1.
The new HMRC fee on this card is 0.386%. This means that I will be able to ‘buy’ Avios for 0.15p each!
Here is the full list of fees:
VISA Personal Credit Card 0.415%
MasterCard Personal Credit Card 0.386%
MasterCard World Premium Credit Card 0.374%
MasterCard Signia Premium Credit Card 0.606%
MasterCard Elite Premium Credit Card 0.606%
VISA Business Credit Card 1.508%
VISA Corporate Credit Card 1.744%
VISA Purchasing Credit Card 1.755%
MasterCard Business Credit Card 1.973%
MasterCard Corporate Credit Card 2.248%
MasterCard Purchasing Credit Card 2.406%
MasterCard Fleet Credit Card 2.134%
You can now clearly see the gulf that has opened up between corporate credit cards, which are not impacted by the EU fee caps as long as the bill is settled by a business, and personal cards.
To take full advantage of this, you need a Visa or MasterCard which has a decent earnings rate. Those are harder to find these days on free cards but some paid cards do have strong rates.
The Lufthansa Miles & More Visa earns 0.75 miles per £1 – and the card is free. You would be paying around 0.5p per mile which would allow someone with large tax bills to get themselves into the excellent Lufthansa First Class product at low cost.
The IHG Rewards Club Premium MasterCard earns 2 IHG Rewards Club points per £1, which I value at 1p. The card has a £99 fee but this is offset by the sign-up bonus in year one. You also receive a voucher for a free hotel night when you spend £10,000.
The Lloyds Avios Rewards MasterCard is the best Avios route if you don’t hold a legacy card. However, at just 0.25 Avios per £1, you will be paying well over 1p per point. It doesn’t make sense, frankly.
Alternatively, you could use the Tesco Clubcard MasterCard. I am cynical about this card because they round down transactions to the nearest £8. On big payments like tax, however, this doesn’t make any difference. You would earn 0.125 Clubcard points per £1 charged which gets you 0.3 Avios per £1. This still doesn’t justify a 0.4% card fee, however.
If you are prepared to jump through the hoops required to get one, the HSBC Premier credit card at 0.5 Avios points per £1 is interesting – you would by paying around 0.8p per Avios. The new HSBC Premier World Elite credit card is even better at 1 Avios point per £1, although the fee on that is 0.606%, so 0.6p per Avios.
The big winners here will be the self-employed or SME owners who have a legacy Visa or MasterCard with a high earnings rate. Even without a legacy card, however, you could do very nicely by getting one of the card products above.
You can even make a profit on your tax. Get a MasterCard or Visa paying the equivalent of 0.5% cashback (ASDA or John Lewis, for example) and you are in profit after paying the 0.386% fee!
This is not a long term opportunity, unfortunately. The earning rates on many Visa and MasterCard cards are unsustainable under the new EU rules and will be slashed as contracts come to an end. For a couple of years, however, you can do very nicely …..
(Want to earn more miles and points from credit cards? Click here to visit our dedicated airline and hotel travel credit cards page or use the ‘Credit Cards Update’ link in the menu bar at the top of the page.)