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Lee Sharpe of TaxationWeb wonders if forcing HMRC to swallow credit card charges is really for the greater good.

Films

I enjoy watching films. I do not profess to have good taste: each to his own. There are few films I care to watch more than once* however, I can and have watched Shaun of the Dead and Hot Fuzz several times. With Messrs. Pegg and Frost, you know you are in safe comedic hands.

The Greater Good

In at least one of those films, the delightful duo end up having to do battle with a town full of mindless monsters, who are determined to convert our heroes or have them die trying. Nope, I have not really narrowed it down… OK… in one of their films, the town's mindless monsters are prepared to sacrifice anyone who gets in the way of “the greater good” – and ultimately that aim falls well short of justifying the means employed.

Why Pay Tax?

We pay tax for civil/societal services and, whether we like it or not, to redistribute wealth. I should clarify that with regard to wealth redistribution, I say “whether we like it or not” because, no matter how it is done, it seems to me that almost nobody likes how it is done, depending on where they are on the wealth scale, perhaps in relation to whomsoever they are about to embark on fisticuffs at dawn with. I should be grateful: it certainly keeps me busy.

At no point did I posit that people pay tax in order to enrich banks or credit card companies. “They” are rich enough, they have impoverished us all, and to my continued amazement, waste no opportunity to vainglorify themselves, complain about pesky regulations as inhibitors of free enterprise and threaten to flounce off to sunnier climes with their our money. Yes, it’s a stereotype, but that does not necessarily mean it’s not true.

The Road to Hell

And so we have EU regulations that were designed:

1. firstly, to protect businesses (merchants) from rapacious transaction charges imposed by unscrupulous payment service providers – issuers and acquirers, etc., (EU Regulation 2015/751. The regulation requires interchange fees on consumer debit and credit cards to be capped at no more than 0.2% and 0.3% respectively (there is also a cap on flat fees, from memory). And -
2. then to protect consumers from rapacious charges / card handling fees imposed by unscrupulous businesses, such as airlines and booking agents. Article 62 of EU Directive 2015/2366, (referred to as the “Payment Services Directive 2” or “PSD2”), says that the payee cannot impose a charge in excess of associated costs incurred, and cannot impose any charge on transactions subject to the interchange fee restrictions in Reg 2015/751 above).

This means that merchants and other payment-takers like HMRC are obliged to foot the transaction cost on any capped fees in (1), albeit the transaction charge can be no more than 0.3% at worst. Merchants may choose to increase their overall retail prices accordingly.

Note that it is only consumer cards that are capped in (1), which is why commercial cards are still subject to relatively high transaction charge rates imposed on merchants. (I do not understand why those in business have to pay more for an essentially similar transaction, but then I am not a banker, etc.)

The UK has decided to create a more level playing field in its implementation of the Payment Services Directive 2, so that the payment-taker cannot charge a fee for any non-commercial retail payment instrument, so going beyond just consumer debit and credit cards in (1) above (see the Payment Services Regulations 2017 SI2017/752)

Why Should We Care?

The new regulations, most parts of which are due to come into force on 13 January 2018, will mean that (amongst others) HMRC and local councils will no longer be able to charge the taxpayer, to cover the cost the transaction fee imposed by the payment service provider, where an ordinary consumer debit or credit card is used. (Or, more accurately, where something that isn’t a commercial card, etc., is used). On a national level, this is not a good thing.

NOT the Greater Good

On the one hand, individual taxpayers may be pleased, if they can use a credit card without fear of merchant transaction fees, and they need time to settle their tax bills. On the other hand, it means money is being pulled out of the national and local government budget, and being paid instead to banks and credit card companies, etc. Each fee charged may be only 0.3% of the transaction value, but when budgets run to tens of millions of pounds at the local level, and hundreds of billions of pounds at the national level, this potentially means a serious loss of revenue.

This is NOT “for the greater good”, as was intended, but rather for the good of a hardly-impoverished few. Merchants can nudge their prices up to cover any anticipated overall increase in banking costs. HMRC cannot, and councils can likewise face constraints on council tax levies, etc. Credit card companies, etc., will end up taking money that was intended for the taxman.

To be fair to HMRC, they have never tried to make money out of imposing card handling fees, etc.: their approach has always been to charge only so much as to cover the overall cost of taking card payments (the same principle applied when one rate was applied to all credit cards, worked out on an averaging basis, as I understand things). This is despite claims that HMRC has been “raking in millions” off the back of credit card charges, as reported by the ICAEW.

Perhaps that amount will fall as credit card companies are obliged to observe the low intercharge rates imposed by the EU. But then again, it may well rise once taxpayers realise there is no transaction fee for using their personal credit cards. At the moment, HMRC operates several different card rates, depending on the type of card. Many of these rates will have to go, and I understand HMRC is currently mulling over what to do about those commercial cards that potentially remain.

What to Do?

So, if I might summarise my position on these new measures, it is that:

• If it is beneficial to a taxpayer’s own budget to pay by card, etc., then great
• But if it doesn’t really make any difference at that level, then taxpayers may choose instead to use online banking and make sure every £1 of tax paid, so far as possible, actually goes towards schools, the NHS, MPs’ expenses…

*(although my resistance has been broken down by two young children and Monsters Inc – at one stage it was a box set of the Lion King until the DVDs *mysteriously* stopped working: a Pyrrhic victory that opened the door to a perpetually Frozen existence