Time is running out to earn large chunks of very cheap airline miles and hotel points from HMRC via your credit card.
As we first announced in early October (but the newspapers only caught up last weekend!), HMRC will no longer accept personal credit cards for income tax, PAYE, VAT or any other payments after 13th January 2018.
This deadline is just four weeks away. If you have any money to pay to the Revenue – perhaps your 31st January self-assessment bill or your 7th February Q4 VAT payment – you should seriously consider bringing forward your payment.
You should also consider starting to make payment now, in small chunks, as some credit card companies struggle to authorise large payments to HMRC. £2,000 seems to be my limit which, given my VAT, PAYE and self-assessment bills, creates an administrative nightmare.
What is going on?
It will become illegal to surcharge all UK credit card payments from January. Companies will have to decide whether to a) stop accepting credit cards altogether or b) 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.
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.
Unfortunately, the most lucrative Visa and MasterCard products were taken off the market when MBNA closed all of its airline cards to new applicants a few weeks ago.
This is a shame, as I was particularly keen on:
The Lufthansa Miles & More Visa earned 0.75 miles per £1 – and the card was free. There was 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.
What good cards are left?
If you are looking to apply for a new Visa or MasterCard in order to pay a large tax bill before 13th January, my preferred choice would be a hotel card and not an airline card.
The best option:
If you have a large tax bill to pay, consider the IHG Rewards Club Premium MasterCard (representative APR 41.5% variable including fee based on a notional £1200 credit limit).
This 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 20,000 IHG Rewards Club points sign-up bonus in year one which is worth £80-£100. You also receive a voucher for a free hotel night when you spend £10,000 so this is a good choice if your tax bill is large.
Interestingly, the points earned from the IHG credit card count towards IHG Rewards Club status. My wife has this card and I will be putting through the bulk of my tax payments on it.
I am ‘doubling my money’ on the HMRC fee (0.38% fee to receive 0.8% to 1% back in points) and the points will go a long way to ensuring she retains top tier Spire Elite status for 2019. Spire Elite requires 75,000 IHG points in a calendar year which is £37,500 of spending on the Premium MasterCard.
Another good choice:
If you don’t want to pay a card fee, look at the Hilton Honors Platinum Visa (representative APR 18.9% variable). The sign-up bonus is excellent (a free weekend night for spending just £750) but so is the earning rate.
You get 2 Hilton Honors points per £1. I value a Hilton point at around 0.33p so you’re getting 0.66p of Hilton points in return for your 0.38p per £1 of HMRC credit card fee.
Note that Hilton Honors points earned from credit card spend do not count for Hilton status. You will, however, receive Hilton Honors Gold status for spending £10,000 on the card in a calendar year.
What are the Avios options?
The Lloyds Avios Rewards MasterCard (representative APR 23.7% variable including fee based on a notional £1200 credit limit) is one possible 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 given HMRC’s 0.38% fee. It doesn’t make sense, frankly. It is only worth doing if you want to trigger the upgrade voucher for spending £7000 on the card, but I imagine that is hardly a difficult threshold for anyone with a high tax bill to reach with day to day spend.
There is also little sense in using the Tesco Clubcard MasterCard (representative APR 18.9% variable) which gives 1 Clubcard point per £8 spent. This means you would earn 0.125 Clubcard points per £1 charged which gets you 0.3 Avios per £1. This doesn’t justify a 0.4% card fee 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 still 0.38% which I am not 100% sure about – but there is a £150 annual fee to swallow and there is no sign-up bonus at the moment. Representative APR 56.5% variable, including the fee, assuming a £1200 credit limit
If you are prepared to jump through the hoops required to get one, the HSBC Premier credit card (representative APR 18.9% variable) 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. Representative APR 59.3% variable including fee based on a notional £1200 credit limit. You must have a HSBC Premier current account to get these cards.
Paying VAT or employee NI / PAYE?
The game changes if you are paying NI / PAYE or VAT. 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 are running out of time to make 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. Until 14th January, their 2.95% fee is reduced to 2.25% for HFP readers who quote the code in this article. 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? – December 2020 update
If you are looking to apply for a new credit or charge card, here are our December 2020 recommendations based on the current sign-up bonus.
British Airways American Express
5,000 Avios for signing up, no annual and a companion voucher for spending £20,000 Read our full review
British Airways American Express Premium Plus
25,000 Avios and the UK’s most valuable credit card perk – the 2-4-1 companion 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
30,000 points and an unbeatable set of travel benefits – for a fee Read our full review
Virgin Atlantic Reward+ Mastercard
15,000 points bonus and the most generous non-Amex for day to day spending 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:
American Express Business Gold
20,000 points sign-up bonus and free for a year Read our full review
American Express Business Platinum
40,000 points sign-up bonus and a long list of travel benefits Read our full review
British Airways Accelerating Business American Express
Earn both Avios and BA On Business points with your business spending Read our full review
Capital On Tap Business Rewards Visa
The most generous Avios Visa or Mastercard for a limited company Read our full review
Disclaimer: Head for Points is a journalistic website. Nothing here should be construed as financial advice, and it is your own responsibility to ensure that any product is right for your circumstances. Recommendations are based primarily on the ability to earn miles and points and do not consider interest rates, service levels or any impact on your credit history. By recommending credit cards on this site, I am – technically – acting as a credit broker. Robert Burgess, trading as Head for Points, is regulated and authorised by the Financial Conduct Authority to act as a credit broker.