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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.

  • rams1981 says:

    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.

    • Rob says:

      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.

      • rams1981 says:

        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 🙂

        • Paul says:

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

          • rams1981 says:

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

        • Rob says:

          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.

  • Bob says:

    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!

  • Chris says:

    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?



  • geoff says:

    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?

    • Rob says:

      It is a purchase. It is always a purchase. If nervous, stick £100 through as a test.

  • Name says:

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

  • Sabine says:

    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.

    • Rob says:

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

  • vol says:

    another very useful article 🙂 cheers Rob 😀

  • Mark says:

    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

    • Rob says:

      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.

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

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