HMRC to Ban Personal Credit Card Payments

It has been a common practice for companies, government departments and official bodies to add a surcharge for credit card payments, but that is set to end in January 2018. The implementation of the EU second Payment Services Directive (PSDII) aims to reform the way credit and debit card payments are made.

In light of this legislation, HMRC has announced that from 13th January 2018, it will no longer accept payment with a personal credit card, which will leave some people whose businesses are struggling with cashflow issues in a difficult position.

Of course, in an ideal world, business will have made the appropriate provision for payment of tax, and have the money put aside. After all, anyone that runs a business knows that turnover isn’t profit, and tax will be due.
However, businesses don’t always operate in an ideal world. Unforeseen expenses and other losses can hit at any time, seriously impacting upon the company bank account and it is in these circumstances that business owners turn to the personal credit card.

A recent article in www.telegraph.co.uk quotes a HMRC spokesman as saying: “We will no longer be accepting personal credit card payments … 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.”

In reality, part of the charge for using a credit card is a surcharge, with some of the fee going to the credit card company and some being retained by recipient of the payment. It could be argued that by removing the ability of those facing cashflow problems to pay by personal credit card, HMRC could be complicit in pushing struggling businesses over the edge. This helps no one.

With the implementation of PSDII, which is intended to stop unfair charges for using credit cards, an unintended consequence is that some businesses may not be able to meet tax payment deadlines with all the consequences, such as late payment charges, that will ensue.

This raises the question; what will HMRC do to help those unable to pay a tax bill by the deadline? HMRC is reluctant to accept payment plans other than its ‘budget payment plan’ which is monthly payments paid in advance.

To conclude, paying a tax bill by personal credit card is always a desperate, last resort because of the crippling interest incurred and removing it as an option, could prove to be seriously detrimental to small business and sole-traders especially. Indeed, it could mean the difference between survival and going bust.

Putting money aside is of course the ideal but is not always practicable for hard pressed businesses to do so. HMRC’s ‘budget payment plan’ is an option but this doesn’t help if a business finds itself at a tax deadline with depleted coffers.

In an attempt to protect consumers against unfair credit card usage fees, the PSDII has indirectly removed an emergency payment facility that some struggling businesses rely upon and whichever way you look at it, this is not good for the UK.