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.
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. 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 …..