HMRC Bans Use of Personal Credit Cards to Make Tax Payments
The number 13 is unlucky for some and there will be hundreds of thousands of low income taxpayers who will feel that they have been cursed when they are unable to use their personal credit cards to pay and spread the cost of their annual tax bill on 13 January 2018 when new EU legislation comes into effect outlawing UK companies from passing on bank charges to UK consumers.
The new EU legislation known as the Payment Services Directive (PSD2) is pro-consumer and prohibits any UK company selling to UK consumers, including HMRC, from charging extra for using a debit or credit card. As a result, from 13 January 2018, UK companies will either have to stump up for the processing bill themselves or stop accepting credit card payments altogether.
HMRC is a publicly funded body and will be unable to absorb the charges and fees made by banks to their customers. In October 2017, it announced that it will no longer accept personal credit cards for income tax, PAYE, VAT or any other tax payments as of 13 January 2018. While personal credit cards will no longer be accepted, corporate credit cards and business cards do not fall under the HMRC ban.
HMRC commented: “We will no longer be accepting personal credit card payments from the 13 January as new rules mean that we can no longer pass on what our bank charge for processing a credit card payment. It would be unfair to expect other taxpayers to pick up this cost. There are a range of ways for people to pay us depending on the type of tax being paid, including debit cards, Direct Debit, Faster Payment and BACS.”
With the self-assessment deadline of 31 January looming, this may result in some taxpayers having to take out loans to settle their tax liabilities.
Previously, taxpayers were able to settle their tax bills by cash or cheque at the Post Office. However, this service ended on 15 December 2017 when the contract with Santander expired, according to ICAEW, the Institute of Chartered Accountants in England and Wales.
Banning personal credit card payments will undoubtedly create problems for a significant number of the 11m taxpayers, who are planning to complete their annual tax return by the 31 January 2018 self-assessment deadline. According to data provided by Which? in the last tax year, 800,000 tax payments were made via personal credit cards and around £13.2m of bank fees.
Although taxpayers were sent warnings with their tax bills, HMRC has been heavily criticised that the change hasn’t been well publicised, and consumer groups have warned that the move was “consumer unfriendly” and could set a dangerous precedent for other councils and government departments, which are also publicly funded.
The Low Incomes Tax Reform Group advised taxpayers who were planning to use a personal credit card to file their 2016/17 tax return early and to pay HMRC by 12 January or to “put alternative payment arrangements in place”. For those who are unable to make alternative payment arrangements and will have problems making payment as a result of the change, it may be possible to arrange a Time to Pay (TTP) arrangement with HMRC.
This policy allows taxpayers to pay their tax bill in instalments by direct debit. An interest of 3% per annum is charged on late payments, but no penalties are imposed. If there is no TTP arrangement in place, penalties are chargeable at a fixed rate based on the amount of tax income unpaid.