Paying "tax money" each month onto credit card?

Moneybus

My OH is self employed and we put £400 into a savings account each month for tax so effectively each year we have £4800 put aside for tax. In Jan & July we have to do a transfer of approx £2400 to pay his tax. However, I'm thinking that as we have quite high credit cards that we pay the £400 each month off the credit card and then when it comes to Jan and July we pay the tax using the credit card and therefore we save interest each month on the credit as there is less money on the credit card.

However my two reasons I don't do it is that:

a) what happens if for any reason my CC company lower my limit we won't have any money to pay the tax eg I might pay £2000 off credit card and then my CC company lower my limit by £2000 so therefore we have no money to pay tax.
b) what happens if the tax office decide they no longer accept credit card payments for payment of tax? Again we will have no money to pay tax as we have paid it off credit card.

Should we look at using a high interest savings account instead?

bengalknights

Where anything tax is concerned a savings account is always best

InsertWittyName

I fill my ISA allowance with mine.

HMRC are the worst creditor to be in debt to!

droiderm

I understand what your trying to do but keep the money where you can get it.
Maybe you need to cut back elsewhere ?

chattychappy

Yes I see your logic.

Moneybus wrote: »

a) what happens if for any reason my CC company lower my limit we won't have any money to pay the tax eg I might pay £2000 off credit card and then my CC company lower my limit by £2000 so therefore we have no money to pay tax.

Yes, that is a risk. I suppose you'd be unlucky if this happened just before the tax was due. The risk of your getting caught short would be lower if you both have multiple cards with plenty of limit to spare.

Moneybus wrote: »

b) what happens if the tax office decide they no longer accept credit card payments for payment of tax? Again we will have no money to pay tax as we have paid it off credit card.

I think this is really not going to happen. HMRC has all sorts of problems collecting tax and it really does make sense for them to continue offering this method. Plus people have got used to using CCs. I suppose they might increase the surcharge for payment by CC. IF they did withdraw the facility then depending on the card you might be able to do a money transfer to your current account and/or do multiple cash advances. Pricey, of course. But as a last resort...

On balance, if paying standard interest rates on existing CC balances, I think I would chance it and pay down the CCs rather than accumulate a positive balance in a savings account.

gglaze

What kind of taxes can be paid by credit card exactly? Is this for Self-Assessment tax only? I just read that there is (or used to be) a 1.25% fee associated with this - is that still the case?

thenudeone

bengalknights wrote: »

Where anything tax is concerned a savings account is always best

I don't think it's as black & white as that.

It's not very sensible to have £3000 in a savings account earning 3% or less whilst at the same time paying interest to a credit card at, say, 19% APR IMO. The OP could save several £100s a year in interest by paying off the credit card rather than saving the money.

There is a risk that the card limit could be reduced, for example, but the saving in interest costs makes that risk well worth it, IMO, and would go some way towards getting out of the situation of permanently having a significant interest-charging balance on a card, which is a bad position to be in; but other ways of cutting back or making savings should also be explored (for example, are you on the cheapest utility & phone tariffs? Do you shop around for insurance? etc.)

bengalknights

thenudeone wrote: »

I don't think it's as black & white as that.

It's not very sensible to have £3000 in a savings account earning 3% or less whilst at the same time paying interest to a credit card at, say, 19% APR IMO. The OP could save several £100s a year in interest by paying off the credit card rather than saving the money.

There is a risk that the card limit could be reduced, for example, but the saving in interest costs makes that risk well worth it, IMO, and would go some way towards getting out of the situation of permanently having a significant interest-charging balance on a card, which is a bad position to be in; but other ways of cutting back or making savings should also be explored (for example, are you on the cheapest utility & phone tariffs? Do you shop around for insurance? etc.)

What happens if HMRC request cleared funds for any reason, there is then the issue of where the money comes from if they dont take the cc

chattychappy

bengalknights wrote: »

What happens if HMRC request cleared funds for any reason, there is then the issue of where the money comes from if they dont take the cc

Nah... they wouldn't do that. With problem payers, the last thing they do is take away a means of paying. Well it hasn't happened yet.

Given the OP's situation, they could actually be better off paying the penalty/interest to HMRC than paying interest on the CC. Pay the tax a year late - 15% in penalties and 3% interest as far as I remember. (Assumes the return goes in on time.) 18% is not too bad really.

My accountant friend has all sorts of clients paying tax late and paying the interest.

Anyway, my point is whilst the OP wouldn't want to plan to pay the tax late, I do think it's worth paying down any high interest debts rather than keeping these in parallel to having money in savings accounts. If the CC limits do get reduced then in the worse case scenario the OP simply ends up paying some interest/penalties to HMRC.

chattychappy

I should add that I *think* that penalties are not applied to late payments on account. So it would be just the 3% interest on this element of the OP's liability. (Willing to stand corrected.)