Income tax on a credit card

tommyn

Hi guys,

I hope someone on here will be able to help. Basically im self employed and after a reasonably successful year we have a fairly hefty income tax bill to come in january 2015.

Now i was thinking of paying my income tax via credit card as that's ok from what i have read apart from a 1.5% fee which has to made on credit card payments.

So rather than lumping out all the money in one go i was thinking a interest free credit card. I will be able to pay it back within a year so i was just wondering what i need to be looking for in these credit cards? I've been trying to read forums and websites but im baffled by all the facts and figures. Im not sure if paying HMRC by billpay will be classed as 'cash withdrawal' or if that even matters? But it looks like it would from what i have been reading?

Im guessing some of you guys on here are pretty clued up on this sort of thing.

Hope you can help.

Thanks

Tom

YorkshireBoy

MBNA offer a 'money transfer' feature on their credit cards, but there's typically a 4% fee for up to 30+ months 0%.

Makes HMRC's 1.5% fee seem a bargain!

The only way (that I'm aware of) you stand a chance of getting 0% cash for 12 months is to go this route...

http://forums.moneysavingexpert.com/showpost.php?p=66621903&postcount=7

But you may think it's too much hassle?

BlondBoy

Tom

Hear what you're thinking, but, respectfully, it may be better for you to think about your tax bill in a slightly different way.

The tax bill you need to pay next January is tax on your profits to the end of April this year. You're paying 9 months in arrears.

It's good to hear you think you'd be able to pay it back within a year, but remember the profit you earn this year will need to pay your tax in January 2016.

Not trying to be preachy, I know it's hard (been there myself). But what you want to guard yourself against is something going wrong (illness, unforeseen circumstances etc) meaning that you can't pay last year's tax out of this year's profits. HMRC have absolutely no sympathy for that argument.

So, rather than think about how you can spread your payments over next year, I'd strongly advise you think about how you get to a position you pay next year's tax from next years profits - and not be working a year behind.

Like I say, hope that doesn't sound preachy, but also hope it helps.



Chris

tommyn

Hi guys. Thanks for the reply. Yes i understand chris and thats the way im hoping to go with things.

Being the first year iv been self employed this is first tax bill i have had to pay. 1 year plus 6 months on account. Personally i need to find around £5000. Now we have had to clear up a little bit of debt from a previous company but now we are all good.

So sorry to be putting things in such a simpleton way but would it not be fine to use say a barcleycard credit card to pay my tax on 0%. After a rethink i would be able to sort it our in less than 6 months and it would keep our cashflow in better shape. I understand there is a 1.4% for paying hmrc through billpay with a credit card. But is that the only charge i woild incure through my interest free period?

Thank you

sivs

Why don't you apply for a 0% purchase card currently halifax have one for 19months.

You will have to pay the 1.5% fee to HMRC.

grumbler

What Barclaycard?
Are you now sure that the payment won't be classed as cash withdrawal?
The only CC I know that doesn't charge for cash is Halifax clarity, but it doesn't offer 0%. If you are thinking about applying for new cards(s), then you can pay by Clarity and then transfer the balance to 0%. However, this would be a more expensive plan than YB suggested.

TBeckett100

Did you not think about setting aside some money rather than spend everything you earn't?

pvt

TBeckett100 wrote: »

Did you not think about setting aside some money rather than spend everything you earn't?

Read the OP's first post and see whether or not there's enough info already there to answer your question.

And I love "earn't" for earned.

planteria

paying HMRC will not be classed as a cash withdrawal, it will be a 'purchase'.

chattychappy

Yep, I did this myself when I lost access to my current account. By chance I had a 0% purchase deal still running on Tesco so I got a load of Tesco vouchers which I used at Pizza Express. Indeed it was classed as a purchase.

Perhaps some of the posters don't realise how self assessment works now.

In January you pay the balance of what's due - so you pay in arrears. But you also have to make a payment on account in respect of the following year (ie the current year) and a further payment on account in July. These payments on account are set at 50% of the previous years' liability. It is true you are paying "a bit in arrears", especially if your income is rising but it is not as generous as it used to be.

You can end up paying too much in advance in some circumstances - eg if you've had a one off bumper year, or your income is shifting to PAYE or dividends.

OP: if you think the payment on account component of your January/July payments will be too high because your liability will be less in the following year, you can reduce it. You don't need to apply, you just say so on your tax return and reduce accordingly. If you do underpay, the balance will be collected in the following January. If you overpay, you reclaim.