Can I Pay HMRC with a Credit Card?

 In Accounting Tips

Freelancers and contractors are getting ready to pay their taxes to HMRC but those who would have liked to pay by credit card may have to find alternative.

As 2018 dawned, HMRC had a nasty shock for many freelancers: it was banning the use of credit cards to settle tax liabilities. The previous years had seen more and more people using their credit cards either to spread the pain of the annual tax bill or to boost their reward points. HMRC’s decision, therefore, met with a fair amount of opposition. A year on, though, people are still finding ways to put their tax on credit.

The end of credit cards

Self-employment has been rising for some time now and with it came a boom in credit card payments at HMRC. By 2016, according to data collected under a freedom of information request by the Telegraph, almost 500,000 payments were made using personal credit cards with the Government charging more than £50 million in fees.

Changes to European legislation, though, prompted HMRC to ban them. The new rules prevent merchants from charging customers extra for paying by debit or credit card. Merchants, though, could still be charged which created a potential headache for HMRC.

Absorbing the cost would have been unsustainable which left them with little option but to stop accepting credit cards. The news came as a shock to those who had been counting on their credit cards to settle their tax bill. Critics were quick to complain about the short notice and a lack of publicity around the move.

Why use credit cards

Credit cards had become more popular for a number of reasons. For some it was a more affordable way to meet their HMRC requirements if, for any reason, they had failed to put money aside for HMRC.

For others this was good way to build up their reward points and take advantage of special offers such as earning air miles. Paying off a large chunk of money with a credit card would supercharge their reward collection efforts and, if they managed to pay it off quickly, they could avoid paying substantial amounts of interest.

However, changes to European law were already making the practice somewhat less appealing. Rewards have been cut back and the fees charged for credit card payments can be substantial. However, if you are determined to use your credit card, there are still options.

Payment service providers such as BillHop have begun targeting their services specifically at people who still want to pay HMRC by credit card. Their business model is simple: they will pay your tax bill to HMRC and charge this back to your credit card. This will then go through as a purchase allowing you to spread the cost and collect those reward points.

There is, of course, a catch. BillHop charges a percentage of each transaction. Assuming your annual tax bill is substantial that fee, along with the existing interest charges of your credit card, could make this an extremely expensive way of paying your bill.

If you’re solely interested in the points, you could also use a Mastercard Curve card. This can recharge the transaction to a linked Visa or Mastercard credit card allowing you to collect those precious points.

So, although HMRC has cut them out, you can still use them if you want or need to. However, while it may help you out if you can’t afford the short-term cost of your tax bill, it can be an extremely expensive way of managing things in the short term.

Paying on time

If possible, then, it pays to make alternative arrangements. If you’re struggling to pay your tax bill on time HMRC may be willing to let you pay by instalments. They’ll ask you about your income, expenditure, savings and assets to see if they think you should be able to pay your tax in one go. If they agree that you cannot, then they may work with you to give you more time to get your payments back in order.

HMRC also offers a budget payment plan which lets you pay your bill in advance in weekly instalments. For this, though, you will need to be up to date with all your tax payments. If the total you pay during the year doesn’t cover your tax bill, you’ll be asked to make up the difference by the payment deadlines.

Hiring an accountant can help you to manage your tax obligations. They can not only make sure you put enough aside during the course of the year to meet your tax obligations, but they can also help you optimise your tax payments so you’re only paying as much as you need to. Although they will come with a cost, you’ll feel the benefits when the time comes to settle up with HMRC.

Recent Posts
Christmas Party ExpensesWhen is the right time to hire and accountant