HMRC ruled out a clause that states businesses can no longer use personal credit cards to pay taxes. This decision proved problematic for business owners who profit from spreading the cost and pay with different credit cards. It is not ideal for freelancers as they cannot predict their earnings. It is also not ideal for persons who often miss leveraging lucrative reward programs.
The blog states whether you should pay taxes using credit cards or not. If you pay the credit card bills in full, the blog may help.
Can you pay corporate taxes using a credit card?
Yes, you can if you are doing it solely to leverage rewards. Is it worth it? It depends on the amount you earn with those rewards. Paying taxes through credit cards entails a fee. Oftentimes it outweighs the value earned from rewards.
You can use your corporate card to pay taxes as an employed person. It is free of cost. Try to pay the taxes on the same day. You can rationalise it by visiting the HMRC website and analysing ways to pay taxes.
The methods you choose depend on the tax type. You can set up direct debits in multiple ways- through debit cards, cheques, BACS, Mobile banking, etc. It may take up to 5 days to pay taxes through direct debit. After that, you must process a single payment each time you want to pay.
If you pay through a cheque, you should send it to HMRC direct BX5 5BD. You do not need to include the complete address. If paying through self-assessment, mention the 11-character reference number on the back of the cheque. Include the payslip you receive from HMRC and attach it with the assessment.
When should you consider paying taxes through a credit card?
If you are good at leveraging rewards, taxes are no exemptions. You can use these to earn rewards and reduce the credit card fees on taxes. Here are some reasons you can consider credit card to pay taxes:
1) You want to earn a signup bonus on a credit card
It is one of the most intelligent moves to make when paying taxes with credit cards. You may win a welcome bonus if you apply for a signup bonus. You may be lucky to grab offers- like no annual fee cash back on the credit card or money back offers. The best part is-credit card rewards are not taxable.
2) Benefit from the 0% APR offer
It is ideal for those who qualify for a 0% APR card and can comfortably pay the full amount by the end of the APR period. Be vigilant about the payments. Missing one could cost a high penalty. You would hardly benefit from the APR cards.
Moreover, it could ruin your plans to reduce the payments. If you are a bit low on funds or want a better deal than a 0% APR credit card offer, check very bad credit loans with no guarantor and no broker in the UK marketplace. You share the flexibility to choose the amount and repayments. If lucky, you may also benefit and save interest with prepayment.
With no broker intervention, you can save unnecessary fees. It is altogether a better option than a credit card. You can consider it if you do not find any possibility of benefiting from the 0% APR offer.
When should you AVOID paying taxes through credit cards?
While you may benefit from paying taxes through a credit card, in some circumstances, there are some situations where you should avoid it.
1. You pay fees to pay taxes with credit cards
As mentioned early in the article, if you are someone who pays their credit card dues timely, the fees would not be enormous.
But if the payments get delayed often, paying the taxes through credit cards is not for you. The HMRC leverages charge when you pay taxes with a credit card.
It with the late payment fee can balloon out the total payment. Hence, it may disturb your budget as well. In such a situation, avoid paying taxes with credit cards.
2. You will pay hefty interest rates
Credit card interest rates are higher than any other alternative. To clear off your taxes with credit cards, total the amount. Before proceeding, consider the interest rates on the credit cards. Usually, it is between 18-21%.
However, you can avoid this interest rate using a 0% APR card. But if the card is not right for you. It is pointless to proceed to pay the taxes through a credit card.
3. Can impact your credit score
Credit cards and balance transfer cards impact the credit score. It is important to note that having an unpaid balance on a 0%APR card can negatively impact your credit. It can impact your credit score if on a lower credit card limit.
And if this happens, the credit drop restricts one from requesting an additional credit limit. Moreover, excessive credit card usage can impact your credit utilisation ratio. If it exceeds 30%, it also lowers your credit score.
Thus, if you get approval on an additional credit card limit or new credit card, analyse whether the limit allowed is higher than the tax amount. Maxing out your credit card is not ideal.
Instead, you can check other feasible options that keep your credit score intact and help you cover up the taxes. If you do not have much tax amount, using a credit card is hardly beneficial. You can tap other options like contacting a direct lender for bad credit loans on guaranteed approval. It may help you bridge the amount if you have unclear invoices.
Partnering with the right direct lender may help you qualify for a surefire affordable loan even with bad credit. It depends on your recent financial behavior. Moreover, you can get these the same day instead of engaging in registering your credit card for tax payment.
It is always ideal to figure out the options on a practical curve. If the benefits you leverage using a credit card exceed the tax amount, using it for tax payment is beneficial. Contrary to it, if the credit card liabilities exceed the tax amount, do not use the card for tax payment. Figure out your best choices by analysing these options. The article helps you decide right.