Paying tax on 31st January? Remember HMRC credit card fees have been slashed

If you have a large chunk of self-assessment income tax due this month, there is an upside.

Last April, HMRC slashed its credit card fee to roughly 0.4%.

One of the biggest jokes, since the EU cap on Visa and Mastercard fees came into effect in December 2015, was that the Government itself was ignoring them.  The fee for paying your tax with a credit card actually rose in January 2016 to 1.5%.

The great news is that this move was reversed in early April 2016.  HMRC is now offering ‘interchange plus’ when calculating your credit card fee.

These fees apply when paying self-assessment tax, VAT, employers NIC / PAYE or any tax collected by HMRC.

For a self-employed person such as myself, this is a good opportunity to pick up some cheap points.

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%

You can now clearly see the gulf that has opened up between corporate credit cards, which are not impacted by the EU fee caps as long as the bill is settled by a business, and personal cards.

To take full advantage of this, you need a Visa or Mastercard which has a decent earnings rate.  Those are harder to find these days on free cards but some paid cards do have strong rates.

The Virgin Flying Club Black Visa, for example, earns 1 mile per £1.  Paying 0.4p per Virgin mile would be an excellent result.  The same goes for the Emirates Skywards Elite card.

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 am using this January, carefully timed so that I am 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 cashing a cheque would be if you paid that way.

Depending on your tax rate – which will depend 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.

This is not a long term opportunity, unfortunately.  The earning rates on many Visa and Mastercard cards are unsustainable under the new EU rules and will be slashed as contracts come to an end.  For a couple of years, however, you can do very nicely …..

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Want to earn more points from credit cards? – April 2025 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 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:

Barclaycard Avios Plus Mastercard

Get 25,000 Avios for signing up and an upgrade voucher at £10,000 Read our full review

Barclaycard Avios Mastercard

Get 5,000 Avios for signing up and an upgrade voucher at £20,000 Read our full review

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.

SPECIAL OFFER: Until 27th May 2025, the sign-up bonus on the ‘free for a year’ American Express Preferred Rewards Gold card is increased from 20,000 Membership Rewards points to 30,000 points. Points convert 1:1 into Avios (30,000 Avios!) and many other programmes. Some people may see even higher personalised offers. Click here to apply.

SPECIAL OFFER: Until 27th May 2025, the sign-up bonus on American Express Platinum is increased from 50,000 Membership Rewards points to a huge 80,000 points. Points convert 1:1 into Avios (80,000 Avios!) and many other programmes. Some people may see even higher personalised offers. Click here to apply.

American Express Preferred Rewards Gold

Your best beginner’s card – 30,000 points, FREE for a year & four airport lounge passes Read our full review

British Airways American Express Premium Plus

30,000 Avios and the famous annual 2-4-1 voucher Read our full review

The Platinum Card from American Express

80,000 bonus points and great travel benefits – for a large fee Read our full review

Virgin Atlantic Reward+ Mastercard

18,000 bonus points 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

50,000 points when you sign-up and an annual £200 Amex Travel credit Read our full review

American Express Business Gold

20,000 points sign-up bonus and FREE for a year Read our full review

Capital on Tap Pro Visa

10,500 points (=10,500 Avios) plus good benefits Read our full review

Capital on Tap Visa

NO annual fee, NO FX fees and points worth 1 Avios per £1 Read our full review

British Airways American Express Accelerating Business

30,000 Avios sign-up bonus – plus annual bonuses of up to 30,000 Avios Read our full review