Can you use a credit card to pay HMRC?

Can you use a credit card to pay HMRC for tax bills or National Insurance contributions? Even with the best financial planning, there are times that credit cards are a handy solution but there are stringent rules on what you can use them for when paying HMRC.

Your e-commerce business may be registered as a limited company or you may be a sole trader, but whatever entity choice you made for your business, taxes will have to be paid. While it is true that in years gone by, business had the option to pay their taxes with a personal credit card, the rules have changed and businesses now need to ensure they are fully informed on the ways in which they are required to pay HMRC.

While personal credit cards are no longer on the table, corporate credit cards can be used to pay multiple taxes, including Self-Assessment taxes, employers’ PAYE and national insurance, VAT, Corporation Tax and even Stamp Duty Land Tax.

So what are the rules, and how can you ensure you’re fully informed on how and when you can use a credit card to pay HMRC, and the fees associated with these transactions?

Here’s the lowdown on the current situation.

The end of personal credit card usage

In early 2018, HMRC delivered a crushing blow to many freelance business owners when they declared that they would no longer accept personal credit cards for tax liabilities and the ruling still stands.

The change came into play due to an amendment to European law, with the government at the time claiming the change could save consumers £473 million a year as they introduced the crackdown on merchants charging fees for card payments. However, as card providers were still able to charge merchants for accepting card payments, HMRC were faced with having to absorb these costs themselves. In an effort to avoid charging those fees back to the taxpayer, the HMRC introduced the ban on personal credit card payments.

A growing number of freelancers and small business owners had been paying by personal credit card, so the last-minute change was not viewed favourably.

We recommend getting an estimated tax liability from an e-commerce accountant, such as ourselves, so you can put aside funds and easily pay your tax bill come the time.

Using your corporate credit card to pay HMRC

While you cannot use a credit card to pay HMRC if it is a personal card, you can use a corporate credit card for an additional fee. According to HMRC, you can use a credit card to pay:

• Self-Assessment taxes
• Employers’ PAYE and National Insurance
• VAT
• Corporation Tax
• Stamp Duty Land Tax
• Income Tax (because you previously under-paid)
• Miscellaneous payments (if your payment reference begins with ‘X’)

Credit card fees when using your corporate card to pay HMRC

The amount your e-commerce business will be charged for making payment via credit card is set by the bank and as such, no figures are available. If you begin the process to pay your bill you will see notification before the transaction goes ahead, stating the fee amount.

It is worth noting that from 1^st November 2020, HMRC will also bring in fees if you pay by corporate debit card, again at a level set by the bank.

There is no charge for payment by Direct Debit, bank transfer or cheque.

Should you use a credit card to pay HMRC?

If you are struggling to meet your tax obligations, it is best to avoid putting large amounts on credit. Your e-commerce business may not be able to meet the repayments and will incur additional interest costs that could spiral and limit your business. A simpler solution is to contact HMRC and ask to be put on an instalment plan. If you don’t feel comfortable doing this yourself, your accountant will be able to negotiate on your behalf.

Accountants and Tax Obligations

Don’t struggle to understand your taxes or be muddled when it comes to putting aside the right amount; talk to an e-commerce accountant. Not only will they be able to help you estimate and save for your tax bill, but they will also be able to ensure you are paying the correct amount.

Limitation on credit card payments for tax

While paying HMRC using a corporate credit card is a useful method for many business, it does come with some limitations.

These include the following:

• You are not allowed to use multiple credit card payments for the same tax. If you are unable to pay a tax bill in full using a single card, you will need to use another payment method to pay the full bill balance.
• More than one corporate credit card can be used for paying HMRC as long as each one is used for a different tax, for example, one card is used to pay Self Assessment Tax, while another is used for Corporation Tax.

Next Steps

If you are looking for help regarding the taxes or any other aspect of your e-commerce business’ accounting, our team are happy to help. As e-commerce specialists, we can help you to build and scale your store, so it reaches its full potential.