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Personal Credit Cards Banned By HMRC: How To Finance Tax And VAT Bills

Stack of multicolored credit cards close-up view with selective focus.It’s that time of the year again when tax bills strike millions of companies across the UK. While business owners are trying to complete their annual tax return, HMRC just released a new rule that says businesses are not allowed to make tax payments with their personal credit card anymore.

It’s very common for business owners to settle tax and VAT bills with their personal credit card. There are many reasons why a business might not have enough capital: rent is due, staff have been paid early, or customers are paying invoices late. In these cases, a personal credit card might be the last resort.

However, on 13 January 2018, the new rule came into force because new legislation removes the ability for merchants to charge back fees to the customer for payments made by personal debit and credit cards.

HMRC puts it like this: “as a public funded body, HMRC is unable to absorb the cost of personal credit card fees as this would ultimately mean charging the fees back to customers through the public purse.”

Whatever the reasons behind it, this change could cause difficulties for many of the UK’s 5 million small companies if they don’t have enough working capital to settle their liabilities. So, many small firms urgently need to look for alternatives before their tax bill is due.

Business credit cards

Of course, you could use a business credit card instead of your personal one — these payments aren’t affected by the changes. However, even a business credit card isn’t the ideal way to pay your tax bill because you’ll still have to pay a processing fee, and the limit might not be high enough for the total amount. Plus, many firms use business credit cards to manage expenses and want to keep the credit limit available for other things.

There’s a wide range of tax finance options to help you maintain healthy levels of cash flow at all times. If your business doesn’t have enough working capital to settle the payments, or you simply want to project your cash flow, here are some other options that could help you resolve corporation tax and VAT worries.

Tax bill loans

There’s no need to throw in the towel if your business doesn’t have enough capital to pay the next tax bill. These days, there are products specifically designed to help businesses finance tax and VAT bills while maintaining enough cash flow.

Instead of paying the lump sum, a tax bill loan gives you the flexibility to spread the costs of your VAT or corporation tax and pay off in more affordable monthly instalments. Since a tax bill loan is an unsecured loan, the lender will carry most of the risk, which will most likely lead to a higher interest rate — however, given the nature of the product the terms are usually quite short, so the real cost might be lower than you think.

A tax bill loan is a convenient way of paying your taxes since it was specifically designed for this purpose. Financing your tax bill may also give you the option to either make payments directly to HMRC or to a bank account of your choice. However, if you can’t get one, there are other options to get some extra funds for your business.

Business overdraft

A business overdraft may be a convenient and useful way of settling your tax and VAT bills. Here’s the thing though: business overdrafts are hard to access because banks are reluctant to approve them nowadays. Even if you’re lucky and you get approved for an overdraft, or already have one, the credit limit might still be too low to settle all your payments.

There are lots of business overdraft alternatives available though. The most similar to overdrafts is revolving credit facilities, which are essentially the same thing minus the bank account. You get a pre-approved credit limit which is the maximum you can access, and dip into the facility when you need short-term cash.

Merchant cash advances

If your business uses card machines, merchant cash advances may be a good alternative to get some extra funds. With this kind of finance, the volume of your card transactions will be used as the basis for lending.

The lender gives you an advance based on your past card sales and then gets a percentage of your monthly card sales as repayment.

Instead of an interest rate, merchant cash advances give you a fixed fee. This means you have a fixed finish line that you need to reach with your monthly sales, instead of making payments actively with interest running constantly.

The amount you pay back every month depends on the volume of sales and your advance rate, which is usually 20–30%. In other words, the amount you repay goes up and down with your takings, and the higher your sales, the quicker you’ll repay the funds.

This type of funding tends to be expensive, but it’s a convenient way of getting finance because you don’t have to worry about missing your payment deadlines since the lender will automatically deal with it through your card machine.

Invoice finance

Another useful way to get finance is through money that customers owe your business. Sometimes, invoices get paid late, or the payment terms simply restrain your cash flow.

Invoice finance gives you an advance based on outstanding invoices. The lender will give you most of the amount immediately, and as soon as the invoices have been settled by your customers, you’ll get the remainder minus fees. This way you don’t have to wait for your customers to pay, and you can get on with your business as usual.

Final thoughts

Of course, in an ideal world, it’s better to plan ahead and manage tax bill payments year-on-year (or quarter-on-quarter). But sometimes these plans don’t work out, and it’s good to know that there are options that’ll help if you get caught out by your tax bill.

If you need help, matchmaking services like Funding Options can help you narrow down the search and find the finance that suits your company’s needs — so you can keep doing business in the knowledge that HMRC aren’t going to be giving you a ring any time soon.

Conrad Ford is Chief Executive of Funding Options, recently described by the Telegraph as “the matchmaking website for small businesses and lenders”. Funding Options has been selected by HM Treasury to help businesses find finance when they’re unsuccessful with the major banks, as part of the Bank Referral Scheme that launched in November 2016. @FundingOptions