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HMRC tells struggling businesses to pay tax on credit cards

7th Dec 2010
Deputy Editor Sift Media
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HMRC is telling debt ridden businesses to use their credit cards rather than allowing them to defer their tax under the ‘Time to Pay’ scheme.

Companies have been told to make tax payments using credit cards instead of being allowed to use the scheme. Further compounding the problem for struggling businesses is the fact that HMRC charges a 1.25% fee for paying by credit card, said a report by accountancy network UHY Hacker Young.

The average annual interest rate for credit cards is 18.8%, and many businesses are now facing five figure credit card bills.

The value of ‘Time to Pay’ deferments granted by HMRC has almost halved over the last year (down 45%) from £830m in Q3 2009 to just £460m in Q3 2010.

“Credit card payments are an expensive way to pay a tax bill. If a business is struggling for cashflow, the last thing it needs is a credit card bill,” commented Roy Maugham, a tax partner at UHY Hacker Young.

“HMRC is one of the biggest payment processors in the UK. Why they feel the need to pay credit card companies such a high fee and pass this on to taxpayers is baffling,” he added.

He warned that if businesses are worried they may not have enough cash to pay their tax bill, they can no longer rely on HMRC being flexible and should make alternative arrangements, since Time to Pay is becoming harder to access, he argued.

An HMRC spokesman told AccountingWEB: “HMRC has not changed its policy or criteria for granting time to pay to those who are in temporary financial difficulty. It has always been the case that before granting time to pay HMRC need to be satisfied that a business is genuinely unable to pay or to raise the money to do so.

“Payment by credit card is one of a number of payment options open to businesses and individuals. For those who choose to pay by credit card the law requires HMRC to charge a 1.25% transaction fee”.

Maugham said: “HMRC should be more sensitive to the cashflow problems many businesses are facing and allow six months grace so that they can pay tax on credit card without incurring additional costs.”

For those having problems paying their tax bill, HMRC’s website provides information on when and how to pay, what happens if they don’t pay and where to get free and independent advice on dealing with debt.


Replies (7)

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By carnmores
07th Dec 2010 19:21

spot on

1.25% just shows how bad they are at negotiating - they shuld not pay more than .25%


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By steve 12321
08th Dec 2010 17:19

Credit card co's/ banks

just done the same. plus I pay fees to banks to for being over o/d limit by £1 off. Why? Clients are stuggling, accountants are last to be paid.

Time this government took the banks to one side and told them to stop ripping of the consumer!

Also, time to sort out the clients!


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By The Black Knight
13th Dec 2010 13:08

Companies ?

Presumably are insolvent if they cannot meet payments when they become due, when HMRC withdraw the life line pehaps they should seek insolvency and not pay any tax.

We are only going to have to bail out the banks when the credit cards are not paid, anyway so what's the difference.

We will soon run out of businesses to pay government employees and when the well has dried up perhaps someone will realise ? or perhaps not.

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By abelljms
13th Dec 2010 15:41

'civil' servants

 “Payment by credit card is one of a number of payment options open to businesses and individuals. For those who choose to pay by credit card the law requires HMRC to charge a 1.25% transaction fee”

They are just soooo not in the real world.

I recently had a letter from HMRC demanding £300,000 in VAT, and it suggested i could stick it on my card..! if only.

Why don't they ever learn how to say something without inviting ridicule at the way they said it?

PS. charging EXTRA for paying by cr card is even more unrealistic! How much money are THEY saved by getting it on the card straight in, instead of trolling down to the bank to pay in a cheq etc....



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By simonmercer
13th Dec 2010 16:30

European Human Rights

My Memory might be a bit shakey, but I am sure that about 5 years ago, HMRC were stopped from suggesting that further debt was incurred to pay off tax debt. It was all linked into the Human Rights Act. Perhaps this is no longer the case but perhaps it should be pushed a bit with HMRC.


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By carnmores
13th Dec 2010 17:19


For those who choose to pay by credit card the law requires HMRC to charge a 1.25% transaction fee”

whats the statutory reference

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By wingco44
14th Jan 2011 13:11

Credit Card Offsets preventing me from paying my Tax Bill - bewa

Don't borrow to pay your Tax bill.  I put £20K on a credit card to pay my tax bill 3 years ago.  The initial zero interest rate disappeared and I now pay over 30% (MBNA!!!!).  The interest is killing me, the loan doesn't decrease and is counted as income, and that is making it even harder to pay my tax bill ever since.  I still owe £19K although IU now owe HMRC nothing until April 11.  I throw what little spare money I have at the credit card but it ain't going to go away.  I can't transfer to another card because of the extent of my current borrowing.

You should only consider using a credit card if you can afford to pay it of in 3-6 months and HMRC would let you do that don't do it.

And remember......there is another tax bill within 6 months for the self-employed; it never goes away.

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