HMRC tells struggling businesses to pay tax on credit cards
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.
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