4 WEEKS TO GO: Last chance to pay your tax with a credit card – what should you use?

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?

You can see the announcement on this page of the HMRC website.

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.

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 Virgin Flying Club Black Visa which earned 1 mile per £1.  Paying 0.4p per Virgin mile was an excellent result.  The same goes for the Emirates Skywards Elite card at 1 mile per £1.

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.

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Want to earn more points from credit cards? – April 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:

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.

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:

SPECIAL OFFER: Until 12th May 2024, the Capital on Tap Business Rewards Visa card is offering a bonus of 30,000 points, convertible into 30,000 Avios. You must have a Limited Company to apply. Click here to learn more and click here to apply.

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.