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

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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 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 points from credit cards? – November 2022 update

If you are looking to apply for a new credit card, here are our top recommendations based on the current sign-up bonuses.

In February 2022, Barclaycard launched two exciting new Barclaycard Avios Mastercard cards with a bonus of up to 25,000 Avios. You can apply here.

You qualify for the bonus on these cards even if you have a British Airways American Express card:

Barclaycard Avios Plus card

Barclaycard Avios Plus Mastercard

25,000 Avios for signing up and an upgrade voucher for spending £10,000 Read our full review

Barclaycard Avios card

Barclaycard Avios Mastercard

5,000 Avios for signing up and an upgrade voucher for spending £20,000 Read our full review

You can see our full directory of all UK cards which earn airline or hotel points here. Here are the best of the other deals currently available.

British Airways American Express Premium Plus

25,000 Avios and the UK’s most valuable card perk – the 2-4-1 voucher Read our full review

American Express Preferred Rewards Gold

Your best beginner’s card – 20,000 points, FREE for a year & four airport lounge passes Read our full review

The Platinum Card from American Express

30,000 points and unbeatable travel benefits – for a fee Read our full review

Virgin Atlantic Reward+ Mastercard

15,000 points bonus and 1.5 points for every £1 you spend Read our full review

Earning miles and points from small business cards

If you are a sole trader or run a small company, you may also want to check out these offers:

American Express Business Platinum

40,000 points sign-up bonus and a £200 Amex Travel credit every year Read our full review

American Express Business Gold

20,000 points sign-up bonus and free for a year Read our full review

British Airways Accelerating Business American Express

30,000 Avios sign-up bonus – plus annual bonuses of up to 30,000 Avios Read our full review

Capital On Tap Business Rewards Visa

10,500 points bonus – the most generous Avios Visa for a limited company Read our full review

For a non-American Express option, we also recommend the Barclaycard Select Cashback card for sole traders and small businesses. It is FREE and you receive 1% cashback on your spending.

Barclaycard Select Cashback credit card

1% cashback and no annual fee Read our full review

Comments (97)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Lux says:

    Thanks for republishing this Rob. It’s worth noting that paying large sums can be slightly painful, and will involve some time on the phone to MBNA. But – this feels almost like free miles!

    • Lux says:

      I’d also be interested in people’s experience paying stamp duty by credit card. I’ve expecting a £90k bill in a few months and it would be nice to earn Virgin or Emirates miles on some of this.

      • Sam says:

        I paid mine on credit card a couple of years ago but only with Lloyd’s Avios Mastercard. 0.25 isn’t great but doubt I could have got the credit limit with a new card. Solicitor wanted to pay it – ha!

      • Polly says:

        Our solicitor couldn’t understand why l needed to prepay all his fees and the stamp duty etc in advance BEFORE they even calculated how much we owed. So l paid by Amex as much in advance for a few weeks while the purchse was happening. They then paid it by bank transfer, but we got the miles. Luckily they accepted Amex. It will just sit in their account until you need it paid. 90k means a lot of spends and repayments tho…
        Did the same for a car, prepaid up,to our limit in advance in mbna, Visa this time, but had to wait for it to clear before they would accept another payment. But we had to be there in person to make each payment. Total nonsense, but again, got the miles. Def worth the effort. As we say again and again, this hobby is NOT for the faint hearted, and you need a hard neck for payments to be accepted in advance.

  • ChrisL says:

    Hi,
    Do you think paying via the Hilton Hhonors Visa would be worthwhile ?
    Thanks, Chris

    • Andrew (@andrewseftel) says:

      0.21p per HHonors point isn’t life changing, but not at all bad (especially if you want the Gold from £10k spend as well).

  • Paul says:

    I’m assuming none of these cards can be taken out in a company name, and if so how is the transfer of company funds to personal for the purpose of paying company bills such as VAT on a personal credit card, accounted for? Any need to declare on p11d etc?

    • Genghis says:

      We do it all the time with our Ltd co. We buy the stuff, co refunds. No P11D declaration required.

      • Genghis says:

        In terms of accounting:

        Buy stuff
        Dr inventory
        Cr director loan account (or equivalent)

        Pay yourself back
        Dr director loan account
        Cr cash

        • Genghis says:

          Iron your case, paying VAT the first journal would be to Dr the VAT payable acct

    • Guesswho2000 says:

      I assume, the same as buying fuel or other business expenses such as hotel rooms or flights on a personal card would be – you’re just claiming it back from the company. YMMV of course, but that’s how I’d read it.

      • Joseph Heenan says:

        I’ve always thought that using it to pay VAT/PAYE/etc bills that a limited company is responsible for is teetering on the edge on danger if you recharge the HMRC credit card fee to the company.

        Whilst you can legitimately justify it in some cases, if your Ltd company is cash rich, has good cash flow and has UK bank accounts and debit cards, there does not appear to be a legitimate reason to add extra costs onto the company.

        If you are a Director of the company, it would seem to violate both regulation 31:

        “Not to accept benefits from third parties (ie a person other than the company) by reason of being a director or doing anything as director”

        and also regulation 32-36:

        “To declare any interest in a proposed transaction or arrangement”

        It’s something I could easily see coming unstuck if you or the company were subject to a HMRC investigation. It’s worth bearing in mind that given this is a transaction with HMRC, it would presumably be very easy for them to identify the people that are likely doing this and target them in bulk.

        • Will says:

          I think a 0.4% fee on the tax being paid (effectively meaning you won’t be taxed in the next period on that 0.4%) is a relatively minor concern. Even on £100k it’s a £400 fee which would be £80 off the next corp tax bill.

          If the books are within £80 on a £100k profit and that’s the only issue they have then they should thank you for being an accounting god and paying in good time.

        • Genghis says:

          I believe you’re looking at ICAEW interpretation and guidance? Going back to source, it’s a very strict interpretation of S176 of CA, 2006. It’s also going against the CA, not HMRC law/SIs/regs. For HMRC, the payment of CT/VAT on a credit card still passes the high level ‘wholly and exclusive’ for the purpose of trade principle for expenses to be tax deductible. There is no ‘necessary’ test for corporate entities.

          • Joseph Heenan says:

            Hi Genghis. Yes, I am looking at ICAEW, so perhaps less relevant for people who aren’t Chartered Accountants – you make a good point about it not having direct relevance to HMRC or a tax enquiry.

            Is there any relevant case law on the wholly and exclusively part? I am pondering the argument that when the payment fee is being paid to generate avios (or similar) that the fee is not in fact wholly and exclusively for trade purposes. (To be clear, it’s only the claiming of the fee I’m really thinking about here, it seems pretty clear that the actual tax due meets the wholly & exclusively test regardless of how it’s paid.)

            I would think there is also a risk of it falling under the ‘benefit in kind’ rules, if the fees reimbursed are greater than £50. I think the rules for repayment of expenses also adds ‘necessarily’ to the test?

        • Rob says:

          In a world where Virgin Atlantic regularly gives out £200 of John Lewis vouchers (ie effectively cash) to anyone booking an Upper Class flex ticket, I doubt these things are troublesome.

  • Brussels Sprout says:

    One thing to bear in mind is that any tax refund due will be credited to your credit card if that is the last payment method you used. Last year I made a payment on account by card but was then due a refund when I submitted my actual tax return, and this was credited back in my credit card account without any refund of the charge paid either

    • Roger I says:

      No, I don’t think so. My tax refund went to my bank current account. There’s even a space on the tax return for this. 🙂

      Your refund was from a payment on account. That’s different.

      • Wally1976 says:

        Is there an opportunity here to ‘accidentally’ overpay and get the refund straight to your bank account?

        • doog1000 says:

          I had thought about this too – perhaps Raffles could chime in with his expertise – with Virgin visa could be an opportunity to accrue unlimited miles at .4p each but obviously don’t want to unneccearily wind up HMRC

      • John says:

        Not sure about this either. In July 2015 I used about 500 3Vs to make a payment on account and it was entirely refunded to bank in January 2016.

        I had about 5 employers in the previous year plus other stuff and HMRC projected my income was going to be £500k or something, so gave me a ridiculous figure to pay, which I happily did that one time 🙂

  • Liz says:

    Rob, I would like to voluntarily back pay 3 years NIC to make my record fully qualifying – I would use my IHG Premium card – would this work for me?

    • Yuff says:

      I can’t find the link on the HMRC website to pay NIC, or perhaps I’m just being silly 🙁

  • Andrew says:

    Now for the rest of gov.uk to catch up. Just had car tax demand, and DVLA are still charging an extortionate £2.50 surcharge for credit cards…

    • the real harry1 says:

      I think that’s because a lot of people still trundle to the Post Office to renew VED – and PO charge DVLA a fee for VED transactions

      renewing driving licence otoh is discounted if you do it online – remember it’s £1000 fine if you forget to do it every 10 years, they are not lenient if they catch you with an out-of-date licence

    • Kip says:

      You can also pay DVLA on an Amex.

      • Alan says:

        How do you do that? I could only see Visa/MC options and non-debit card ones all attracted a £2.50 fee…

    • Ben says:

      Hi All
      There’s no mention here about using the Curve card to pay tax on HMRC website. Does anyone know if this card will be accepted, and if so, what the charge would be for using it. I’m wondering if it would be cheaper to use the Curve linked to a Mastercard, rather than using the Mastercard direct.
      Many thanks

      • AndyW says:

        It is classed as a corporate card and so v.expensive.

        • John says:

          Goes through as a debit card with my council since they switched to online payment processing in November. They saw it as a credit card before that.

      • Peter K says:

        IIRC it was nearly 2% fee last year. You’re better off using your personal credit card directly.

  • krys_k says:

    Re. Paying with Lloyds – if you have the premier card and your bill is £5k, well, you now have an upgrade voucher. If you’re not Avios rich, then this upgrade voucher is a great way to get the opportunity to travel business.

  • Alan says:

    Shame the DVLA didn’t follow suit – still a fixed £2.50 fee with them which is a pretty high percentage if you have a fairly low emission vehicle!

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