HMRC Bans Credit Card Tax Payments

Posted by Tom Magor in Personal Finance on 12 January 2018 - Tom is a Senior Credit Analyst at checkmyfile.

From 13 January 2018, it will no longer be possible for consumers to use a personal credit card to make a payment on HMRC’s Self-Assessment tax portal. Historically, this has been a popular option as it allows what is often a considerable sum to be deferred.

The move comes in response to new rules which prevent HMRC from passing on the bank charges for processing credit card payments. The timing of the announcement is likely to be a particular inconvenience with 11 million Britons trying to complete their annual tax return prior to the deadline on 31st January.

How many people pay tax by credit card?

To illustrate the popularity of the payment method, in 2016/17 there were 454,000 credit card tax payments worth a total of £741m which resulted in approximately £3.2 of bank fees. Despite the sums involved, personal credit card payments only accounted for a mere 0.8% of payments by volume and 0.2% by value. While that amounts to a small proportion, it still leaves nearly half a million people needing to find an alternative payment method from now on.

There is particularly inconvenient for people who are self-employed, many of whom stated that they only received notification of the change in mid-December, leaving little time to arrange alternatives. Where people run their own business, every penny counts and the line between personal savings and money for the business are all-too-often one and the same, meaning for some, this could have a knock-on effect.

The Low Incomes Tax Reform Group, a charitable organisation, say that the change will have a particularly adverse impact on those with low incomes who previously heavily relied on the use of credit cards to pay their tax bills.

Why aren’t credit card payments accepted?

The charges levied by credit card providers are generally much higher than their debit counterparts, and these fees have traditionally been passed straight to consumers. The move by HMRC coincides with new rules introduced as a result of an EU directive, making it illegal for organisations to charge any fee for using a debit or credit card to make payment. HMRC defended the move by saying that as a public funded body, it was unable to absorb the cost of credit card transactions, and that the move would result in the fees ultimately being extracted from the public purse.

When the option to make payment via credit card was introduced in 2008, there were concerns that it would discourage people from setting money aside for tax payments.

Alternative ways to pay

Moving forward there are alternatives available for those who are reliant on credit to pay their tax bills. A money transfer credit card – where you can switch part of an available credit limit from a card as cash to your current account (albeit for a fee) could provide a short-term fix. This would facilitate using a debit card, whilst still getting the benefit of any interest free period.

What if I don’t pay?

The important thing is to not ignore the problem. On top of the fines and interest that would come with not paying at all, HMRC is able to instruct debt collection agencies to pursue the debt, take you to court, or even make you bankrupt. In either case, your credit rating will be severely damaged, for a long time to come.

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