Fee shock: Taxman takes £50m from people paying tax by credit card

The Taxman has reportedly taken an astonishing £50 million in fees from people who have paid their tax bill using a credit card. As self-employed people have struggled to find the cash to pay their tax bill, they have turned to credit, and HMRC has been charging them handsomely to do so.

The full figures came from a Freedom of Information request made by the Daily Telegraph. It found that the peak year was 2014/15, when almost 500,000 payments were made to the taxman on a credit card, netting them over £12 million. Last year it made almost £10 million from the charges in the first nine months of the tax year alone.

This seems particularly unfair: those paying on credit card are likely to consist largely of people who cannot afford to pay their tax bill by the deadline, so charging them a fee for the privilege feels like kicking them while they are down.

Good news

The good news is that the total paid in fees is likely to come down in future, because the rates have been reduced from 1.5% to 0.6% or lower - depending on the credit card you are using. HMRC told the paper that it didn't make any money from this charge - it simply covered the cost of accepting credit cards - so the cost came down when the EU capped the interchange fee that HMRC has to pay to the card provider at 0.3%.

Of course, there's nothing to stop credit card companies from raising their fees when Britain leaves the EU, but for the time being at least these fees should be slightly less painful for taxpayers.

Credit card

Fees will continue to pour in for the taxman, however, because paying by credit card is on the rise. In 2011/12, just over 423,000 tax transactions were made by card. This had risen to just under 500,000 four years later.

This is far from an encouraging sign. The fees make paying by credit card unattractive, so people will only pay their tax bill this way if they absolutely have to. The rise in credit card payments is linked to the rise in self-employment, which would seem to indicate that people are not putting aside enough money to pay their tax bill at the end of the year - and are left with a black hole in their finances when the tax payment deadlines roll around.

If they are already struggling to make ends meet, the last thing they need is a credit card bill racking up interest and creating another cash flow headache.

In addition, if you are forced to put thousands of pounds on your credit card, you don't just have large credit card debts, you are also likely to have maxed the card out. Both are considered warning signals for anyone checking your credit record, so that if you need to borrow in order to invest in your business, your credit card bill could stand in your way.

What can you do?

If you cannot afford to pay your tax bill, therefore, it's worth considering your options. Credit cards are not the only way to borrow money, so if you can access a competitive short-term loan, it may prove more cost-effective.

Alternatively you could consider contacting HMRC before digging out the credit card. HMRC has the power to grant leniency if it chooses to do so.

It will ask you lots of questions about your income and expenses, as well as your financial position. If it decides that you cannot pay it may either give you more time to pay or allow you to pay your bill in instalments by direct debit.

There's a good chance you will have to pay interest on late payments, but it's worth contacting HMRC before the payment deadline to discuss any problems you are having and talk through the options that are open to you.