A controversial credit card ban for payments on tax bills will be delayed by six months as extra funding is announced for the Australian Tax Office.

Guardian Australia understands Treasurer Jim Chalmers will announce on Friday extra funding for the ATO to halt the change until the end of June.

The backflip follows criticism from small businesses in response to the ATO’s plan which was to stop accepting credit card payments for tax bills from the end of November.

On 1 October, the tax commissioner, Rob Heferen, announced moves to stop accepting credit card payments for tax bills from 1 December. He said continuing to accept card payments would cost the ATO almost $200m a year, as those costs can no longer be passed on to card users.

But some business owners, particularly smaller operators, use credit card payments as a cashflow tool, managing their liabilities by using credit when required.

The tax office said continuing to accept card payments would cost the ATO almost $200m a year under the Reserve Bank’s ban surcharges for credit card payments.

Because tax liabilities are legislated by federal parliament, the ATO says it cannot build card payment costs into charges paid by taxpayers. Estimates suggest about 5% of small businesses use credit card payments for tax bills.

“Small business needs this facility in place,” the Australian Chamber of Commerce and Industry boss, Andrew McKellar, said this week. “They’ve got to manage cash flow. What they are looking for is for one clear, consistent approach and solution from government.”

More details soon…