Paying tax on 31st January? Remember HMRC credit card fees have been slashed!

If you have a large chunk of self-assessment income tax due this month, there is an upside.

Last April, 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 in December 2015, was that the Government itself was ignoring them.  The fee for paying your tax with a credit card actually rose in January 2016 to 1.5%.

The great news is that this move was reversed in early April 2016.  HMRC is now offering ‘interchange plus’ when calculating your credit card fee.

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 is a good opportunity to pick up some cheap points.

HMRC logo

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 Virgin Flying Club Black Visa, for example, earns 1 mile per £1.  Paying 0.4p per Virgin mile would be an excellent result.  The same goes for the Emirates Skywards Elite card.

The Lufthansa Miles & More Visa earns 0.75 miles per £1 – and the card is free.  There is even a 33% miles bonus for the first six months.  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.  This is the card I am using this January, carefully timed so that I am inside the six month period to get the 33% bonus.

The IHG Rewards Club Premium MasterCard earns 2 IHG Rewards Club points per £1, which I value at 0.8p – 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.  One problem with this card is that Tesco rounds down transactions to the nearest £8 which impacts your earnings rate.  On big payments like tax, however, it 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, unless you have a definite plan to get at least 1.5p per Avios point of value.

If you have a substantial tax bill, and would use the other benefits of the card to justify the fee, the Tesco Premium Credit Card may be worthwhile.  You earn 0.6 Avios per £1 – assuming that the fee is 0.4%? – but there is a £150 annual fee to swallow and there is no sign-up bonus at the moment.

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 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.

Paying VAT or employee NI / PAYE?

The maths is different here because the credit card fee is a deductible business expense in the same way that the fee for cashing a cheque would be if you paid that way.

Depending on your tax rate – which will depend whether you operate as a sole trader (and in that case what your personal tax rate is) or a limited company – you could be paying a net card fee as low as 0.2% – 0.25%.  This makes the deals I outline above look more attractive.

You can even make a profit on your tax.  Get a MasterCard or Visa paying the equivalent of 0.5% cashback (ASDA, Amazon or John Lewis, for example) and you are in profit after paying the 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.)

Bits: Avios launches targetted Super Boost promo, Lloyds brings back refer-a-friend!
My review of the British Airways Terraces Lounge at Berlin Tegel Airport
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Comments

  1. That gulf in merchant acquirer fees between personal and business cards has always been there, AFAIK.

    WorldPay used to charge me an extra 0.4% to accept a business card and after getting stung a couple of times I always asked customers if they were paying by personal credit card.

    I used to get constant mailshots inviting me to take out a business card, but could never see the point: there was always an annual fee, there were never any rewards or chashback: they just seemed to be a way to extract a larger proportion of the sale price from the seller.

    I could never see the logic for a small business.

  2. This has been touched on, but as my tax bill is larger than my credit limit, what’s my best bet of paying in my MBNA virgin black card. Is it to put my account into credit or make serveral payments over a longer period? Don’t hmrc state that you must pay it in one go.

    • There’s no issue with part-paying…. I’ve just been doing one transaction of £500/month so far, but have the balance to clear towards the end of the month – so hoping it won’t be an issue at least!

    • With MBNA you can only spend to your credit limit even if you have extra cleared funds on
      your account. I tried this before. You could use other cards if you have them.
      I have two credit cards with MBNA so I took some of my credit limit off 1 account and put it
      on the card I wanted to use then paid HMRC after that I went back into MBNA’s website
      and paid it out, I now have cleared funds.
      I hope this helps

    • Pay HMRC to your credit limit (or close to it) on the MBNA card. They pay the balance off and use the card again at HMRC – you don’t have to wait for the statement to be issues to pay off the balance, you can pay whenever you like. I have done this just the last month on my Etihad MBNA card and got the full miles without any issues whatsoever.

  3. £20.75 charge for virgin visa to pay £5k. 0.2075p per mile!

  4. If I have around a 16K bill – and don’t fly very often – would it be worth getting any of the cards? I know I will be paying for a flight from Auckland to the UK later on this year – but would it be worth the expense of say £150 for the Emirates card, then the fee for using the credit card?

    • Dont forget we are talking Visa or Mastercard here and not Amex.

      Are you travelling solo? If so you could look at the Lloyds Avios card , spend £7000 on that and get an upgrade voucher assuming you already have some avios plus 4500 avios for taking it out and another 1750 for the spend. The £9000 could be spent on Hilton card or similar if you need hotels (and you already have hotel points you can add to). Or Virgin black if your looking at a Virgin redemption. You need to look at what you have already ad try to add to that pile rather than having lots of small balances.

      • I suppose you’re right. The one thing is I only have Virgin Air Miles – I have no other loyalty scheme at all! I’m thinking how to make the most of the bill at all. It is a shame Amex is not accepted – I think we’d all be in the air as we type this!

  5. Andrew Clark says:

    I got a Virgin Black card for this purpose. What with sign-up bonus, Corporation Tax, VAT and Self Assessment I’ll have over 50K points after just one month. It almost makes paying my VAT a pleasure!

  6. Instead of using my Tesco credit card can I use my Tesco debit card which gives me 1 point for ever £8 spent.
    Have anyone used this and received points for debit card.

  7. Didn’t know I can pay company VAT and company tax with personal card. How do I then record this in bookkeeping if the money are not leaving the company account?
    Thanks

    • Dr VAT payable / Corporation tax payable account, Cr Director loan account and then reverse out the director loan account once you refund yourself Dr Director loan account, Cr cash

      • sorry didn’t get that :) something to do with Directors loan.. I will try to ask my accountant

        • Apologies. In plain English, basically create a loan account where the co owes you personally some money and then clear it out once you pay yourself back.

          • Axel Heyst says:

            Agreed Genghis, though your accountant may suggest you name it something softer like Petty cash account and keep it separate from your Loan account.

            The OP has made a good point, you can use your tesco debit card to pay bills e.g credit cards (hushhush) and double dip on points. In his example its a 12.5% bonus.

  8. OT HSBC Elite. I’ve somehow got the card despite not meeting the criteria and not been questioned yet by HSBC.

    I have however put through over 12k of spend within 5 months and received both sets of 40k point bonuses (surprised me to see the 40k for spending 12k in the year hit immediately).

    Is there any point in keeping the card and paying the fees for another year with no bonuses around? Do you need to have the card still to be able to transfer points out? Eg I’d prob wait till they offered another BA transfer bonus before moving my points.

    • The fee is not refundable so no reason to cancel it midway through the year. There are some new benefits now as well such as free Expedia Gold membership and £20 of Uber credit every time you spend £500 on flights.

      • Thanks Rob.

        Sorry should have been clear – won’t cancel before the year is over. Meant is it worth renewing?

        Expedia Gold is interesting, no idea about that, will have a read about it.

        Any idea if it can be churned for the bonuses :-)

        • Are you willing to share which criteria it is you don’t meet, and how you went about applying, please?

          • I don’t have an investment product or 50k deposited with them as is required unless I’m mistaken.

        • No idea what the policy is. Not sure I would pay the full fee unless I was putting a lot of spend on it. £50,000 per year means you’d earn 25,000 more Avios than the free card which is just about worth £195. If you use the lounge access it may swing it on lower spend.

  9. I also have the MBNA miles and more visa for exactly this purpose. Anyone know whether you are automatically enrolled into M&M, as I have not been sent any account details and am not sure where the miles are crediting to!

  10. Hi Rob, my wife has a tax payment of over £17K due this month. She has an HSBC Premier MasterCard. From an Avios-earning perspective, it would appear from your article that it would make sense for her to use this card to pay. Is that right?

    Thanks.

    Chris

  11. I am interested in making my self assessment income tax payment with my IHG Premier Visa card but cannot get Barclay card to confirm one way or the other if the payment is taken as a regular purchase or a cash advance. If it is the latter I would incur interest at a horrendous rate from the day I make payment in addition to the 0.415% transaction fee. Does anyone have any experience or advice on how credit card companies treat the payments to HRMC?

  12. Can anyone else confirm whether the payment is seen as a cash transaction or as a retail purchase using a creditcard?

  13. Have just been quoted fee of 41.50 GBP to make 5k payment to HMRC on my Virgin Black card so 0.82%, which is double of what has been mentioned by others on this topic? Any trick I missed? And has anyone used two different cards to pay a larger tax bill? Thanks.

    • Odd. Why not stick in another card number to calculate the fee and then switch to Virgin on the next page? 😉

  14. another very useful article :-) cheers Rob 😀

  15. I’ve got a 48k vat bill to pay and an 10k credit limit on my Virgin Black.

    Is it going to be OK to pay this in 5 lump sums, paying the visa bill off from my Business Bank Account?

    I usually pay by direct debit and don’t want part paying in 5 chunks to raise any flags

    • You can do it but it is unlikely that MBNA would automatically approve it. I struggle with anything over £2k. It may be necessary to ring MBNA so they can approve it whilst you are on the phone, making the payment at the same time. Then repeat 4x.

  16. If only I could do it on the BA Amex,