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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.

  • aceman says:

    is there any referral bonus for the VS card?

  • Buster says:

    Another way to maximise this is use a Tesco bank account and pub via debit card. No interchange fees and same earning rate at the Tesco MasterCard.

  • RS says:

    Facing a not insignificant tax bill this month – this post is a godsend!

    I had one question (I don’t know much about the HMRC payment portal) – but could you use a combination of cards to make this payment (eg to avoid hitting the maximum limit on individual credit cards)?

    • John says:

      Yes but not too many cards, and/or not in one go. Start paying today and give it a few days before the next card

    • Yuff says:

      Or just put your credit card into credit, by making a payment, and doing 1 payment.
      Some accounts don’t like this but I’ve never had a problem doing it.

      • Lev441 says:

        my MBNA virgin card was blocked when I tried to put it into credit. I needed to pay a £12k vat bill and my credit limit was £6k. When i put an additional £6k on there the card payments refused to complete.. I called up MBNA who said its not allowed for potential money laundering reasons!?

        • Dannyrado says:

          Yes MBNA are a joy. I’m going through this right now… drip pay, spend, drip pay, spend. Payments also take days to show as ‘completed’. Very annoying.

          • Neil says:

            I had exactly the same issue with MBNA. Tax bill was £1k more than my credit limit so I put it into credit by over £1k. Then tried to pay it and found out they won’t let you make a payment larger than your credit limit so just made a payment up to my limit. Couldn’t then make a second payment until the first had moved from pending which took days. Very frustrating!

  • Greg Yates says:

    Rob

    Which Emirate elite card should I use the American Express or Visa to pay corporation tax?

  • Gulz says:

    With thanks to HMRC, I have done very nicely over the last year and a half, if I may say so. Since the Interchange plus was introduced in Apr 2016, I have paid 40K to HMRC in Corp tax and VAT using my Virgin Black card. Before Jan 2016, I used to load up on 3V cards to pay my HMRC bills. Between Jan and April 2016, when 3V was gone and a higher fee had been introduced by HMRC, I used a combination of Visa gift cards and Supercard (linked to Curve, which was in turn linked to Virgin Amex Black). Now I have another big tax bill to pay!
    Only way I could thank HMRC more is if they made paying tax an optional thing!

  • Nick M says:

    I’ve been using my TSB CC – 1% up to £500/month… will be paying the balance on my wife’s Virgin White which will also hit the sign up bonus nicely. Once I have the figures for next year I may reconsider and get Virgin Black, IHG Premium or similar!

  • Ed says:

    And what about the Tesco Bank *Debit* card? That one promises to pay 1 point for every £8… No debit card fees at HMRC I assume!

    • Rob says:

      ‘Finance’ transactions,eg paying into a bank account or pension, do not accrue points. No idea if that counts as finance?

      • Ed says:

        That is a good question. Perhaps anyone has experience with this?? If it works, it would be a cheap way of getting points, without transaction charges…

  • Ben says:

    Hi Rob. Tried to do my first post before, but seems like it didn’t go through, so trying again.

    Hi All.
    Was just wondering if you can use the Curve card to pay HMRC, and if so what the fee would be. I’m wondering whether it’s better to use the Curve linked to a Mastercard rather than the Mastercard direct.
    Many thanks

    • Gulz says:

      Rob has covered this in his previous articles. Bottomline is, Curve is considered a MasterCard Business Credit Card by HMRC, so you will be charged 1.973%. Depending on the underlying Mastercard (if it is non-business), the fee charged will be lower.

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