HMRC has announced that it will no longer accept personal credit cards for income tax, PAYE, VAT or any other payments after 13th January 2018.
This is clearly a blow for those people, myself included, who have been using the incredibly low fees charged by HMRC for card payments to run up miles cheaply.
It will become illegal to surcharge credit card payments from January. Companies will have to decide whether to stop accepting credit cards altogether or to absorb the costs. With interchange fees now capped at 0.3% under EU law on personal cards, it should not make much of a difference to retailers.
That is the theory. In reality, card processors appear to have got around the 0.3% cap on interchange fees by inventing new additional charges for retailers.
HMRC has decided to take the first option.
What is the current position?
Until 13th January, you can continue to pay any HMRC bills by Visa or Mastercard. The fees are generally just 0.38% or 0.41% of the amount due. I will be doing my best to prepay my January / February VAT, self-assessment and PAYE bills before then.
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%
Paying personal tax via self assessment?
To take full advantage of HMRC’s low fee, whilst it lasts, you need a Visa or Mastercard which has a decent earnings rate. These 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 used last January, carefully timed so that I was 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 writing a cheque would be if you paid that way.
Depending on your tax rate – which will depend on 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.
Corporate credit cards WILL continue to be accepted after 13th January. However, with fees of 1.5% or more, you are unlikely to get any value from this, even after deducting the card fee for tax purposes.
January 2018 is going to be your last opportunity to take advantage of these cheap miles from HMRC. If you are expecting to have a tax bill to pay, you may want to start making plans.
PS. You cannot pay HMRC bills with an American Express card. The only option is to use Billhop – which we wrote about here – as an intermediary, paying their 2.95% fee. This may make sense if you are a little short of the spending required to trigger a sign-up bonus.
Want to earn more points from credit cards? – August 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:
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.
EDIT: Until 25th October 2022, there is an exceptionally generous sign-up bonus on The Platinum Card. You will receive 60,000 Membership Rewards points – double the usual amount – and £200 to spend at Amex Travel. You need to spend £6,000 within six months to earn the bonus.
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 & two airport lounge passes Read our full review
The Platinum Card from American Express
60,000 points, £200 travel credit and an unbeatable set of 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 long list of travel benefits 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.