Still time to beat the axing of credit card tax payments
QUESTION: I normally pay my tax return liability with my credit card when my accountant completes and files my tax return during the last week in January. I have read that I will no longer to be able to use my credit card. Is this correct?
ANSWER: Taxpayers who were planning to use a personal credit card to pay their 2016/17 tax bill (due by January 31) will need to pay HMRC early or put alternative payment arrangements in place. At the moment, taxpayers are charged a fee by HMRC for paying by credit card. However, from January 13 the EU Payment Services Directive 2 prohibits merchants (including HMRC) from recharging associated fees back to customers. At the same time, HMRC is unable to absorb the cost of credit card fees as this would mean a cost to the public purse. The result is that HMRC will stop accepting credit card payment altogether.
Corporate, business and commercial credit cards are not affected by this change and personal customers will continue to have alternative payment options including direct debit, Faster Payment, BACs, debit card and CHAPs. Note that from December 15 the option to pay by cash or cheque at the post office has also been withdrawn.
This change is likely to have an adverse effect on people on low incomes who rely heavily on their credit cards. The timing of the cessation of credit card payments will be particularly inconvenient with the 2016/17 tax payment deadline looming. An option for such taxpayers is to beat the change by filing their tax return and making payment by January 12.
If this is not possible and if taxpayers will have difficulty making payment as a consequence of the change, then they may be able to arrange ‘time to pay' with HMRC, particularly if they apply before the payment deadline. Under this policy, taxpayers may be given the opportunity of paying their tax by instalments (paid by direct debit) rather than recovery proceedings being instituted for the full amount. Interest will still be charged on the late payments, but no penalties will be imposed.
The late payment interest rate will be three per cent, per annum and, if there is no time-to-pay agreement in place, penalties are chargeable at a fixed rate based on the amount of tax income unpaid as follows:
After payment is 30 days late - Five percent of tax outstanding.
Five months after above charge (six months late) - A further five percent of tax outstanding.
Six months after above charge (12 months late) - A further five per cent of tax outstanding.
One problem with paying tax by credit card is that HMRC automatically make any ensuing repayment within the following nine months to the same credit card account, even if the taxpayer has given instructions for HMRC to pay their refund to a different account. The effect of that policy can be disadvantageous for taxpayers in financial difficulties.
Consider for example, someone who since last paying their tax bill, has lost their job and run up a large credit card debt. As a result of losing their job, they are due a tax refund for the latest tax year. HMRC now will only process the refund back to the credit card used to pay the previous year's tax. As a result, the repayment just offsets credit card debt. Taxpayers should be aware that there will be a nine-month period from January 13 where repayments may still be made to credit cards rather than to bank accounts mandated by taxpayers.
Feargal McCormack (email@example.com) is managing partner of PKF-FPM (www.pkffpm. com). The advice in this column is specific to the facts surrounding the question posed. Neither The Irish News nor the contributors accept liability for any direct or indirect loss arising reliance placed on replies.