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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 …..

best travel rewards credit cards

Want to earn more points from credit cards? – July 2024 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

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

Barclaycard Avios card

Barclaycard Avios Mastercard

5,000 Avios for signing up and an upgrade voucher at £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.

Marriott Bonvoy American Express

20,000 points for signing up and 15 elite night credits each year 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

British Airways American Express Premium Plus

30,000 Avios and the famous annual 2-4-1 voucher Read our full review

The Platinum Card from American Express

40,000 bonus points AND (to 27th August) £400 to spend at Amex Travel Read our full review

Virgin Atlantic Reward+ Mastercard

18,000 bonus points 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 an annual £200 Amex Travel credit Read our full review

American Express Business Gold

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

Capital on Tap Business Rewards Visa

10,000 points bonus – plus an extra 500 points for our readers 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 Business Credit Card

1% cashback uncapped* on all your business spending (T&C apply) Read our full review

Comments (97)

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

  • RussellH says:

    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.

  • Jon says:

    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.

    • Nick M says:

      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!

    • Imbruce says:

      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

    • Gulz says:

      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.

  • rams1981 says:

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

  • the_real_a says:

    I have both the 0.5% and the 1% ASDA card. The 0.5% rebate is credited back to the account each month when the statement is generated (i.e. good as cash). The 1% card forces you to print a voucher online which you then redeem in-store at ASDA. Petrol and gift cards are excluded. You scan the barcode of the voucher on the till and the voucher amount is deducted from the bill.

  • Shaun says:

    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?

    • roberto says:

      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.

      • Shaun says:

        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!

  • 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!

  • Steve says:

    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.

  • Djouzif says:

    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?

    • Genghis says:

      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

      • Djouzif says:

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

        • Genghis says:

          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.

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

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