From 13 January 2018, Brits will no longer be able to pay their tax bill with a credit card. We'll explain why the HMRC has taken away the credit card payment option and present other ways to pay your taxes.
Why Won't HMRC Accept Credit Card Payments Anymore?
The HMRC will no longer accept credit card payments because a new law makes it too costly—basically, the HMRC can no longer recoup credit card processing costs from consumers who chose to use a credit card.
Under the revised EU Payment Services Directive II, merchants (e.g., HMRC) won't be able to impose a surcharge on credit card payments from 13 January 2018. This new law is meant to protect consumers, as credit card payment fees were often not obvious upfront and could add significantly to the cost of a purchase. Not all merchants imposed a credit card surcharge, but of those who did, typical fees of 2% - 3% were not uncommon.
According to our research the HMRC had been charging credit card payment fees in the region of 0.4% - 0.6% for personal credit card payments and 1.5% - 2.4% for business credit card payments. Under the new regulation, HMRC can no longer charge these fees.
Why Did HMRC Impose a Fee on Consumers to use a Credit Card?
Credit card payments are costly to a merchant and, in theory, surcharges are meant to compensate a merchant for the cost of accepting a credit card payment, as opposed to other payment methods.
When a merchant accepts a credit card payment, they themselves suffer a cost. For example, when you buy a dinner costing £100 using your credit card, the restaurant may only get £98—the difference is eaten up by a Merchant Service Charge (MSC). The MSC is generally composed of the interchange fee (maximum 0.3% for credit cards) and other processing costs to the bank. MSCs are variable but can be expected to come in around 1.5%.
Now that HMRC can't offset these costs to credit card payers via a fee or surcharge, the HMRC will no longer accept credit card payments.
How Can You Pay Your Taxes?
Those who used to pay taxes with a credit card have a number of other payment options. According to Gov.uk, taxpayers can still use a debit card to make payment. You can learn more about the following payment methods from the Gov.uk page on Paying HMRC. Be sure to leave enough time for your payment to arrive—and if your deadline falls on a weekend or bank holiday, your payment should reach HRMC on the last working day before, unless you're paying by debit card or Faster Payments.
|Estimated Time to Receive Payment||Payment Method|
|5 Working Days||Direct Debit (first time)|
|3 Working Days||Direct Debit (repeat orders)|
|Cheque through Post|
|Same or Next Working Day||Debit Card|
|Faster Payment (online or telephone banking)|
|At your Bank/Building Society|
While the ban on credit card usage fees was meant to protect consumers, the HMRC's decision to scrap credit card payments is a prime example of how the new law can have a negative impact on the public. It will especially hit those without the money the pay their taxes all at once, who need to spread out the cost of their tax payment over time. Instead of using a 0% credit card to reduce the upfront burden of a hefty tax bill, for example, consumers unable to handle their tax bill in one go may now have to resort to more costly borrowing options such as personal loans.