Tax Return Deadline Fast Approaching
Tax Tips – Business Question:
I am aware that HMRC have made some concessions, due to the impact of Coronavirus, in relation to tax returns that are due to be filed by 31 January 2021 and tax paid by that date. Can you explain what these changes are?
The significant changes that took place this year as part of the Government’s support package for businesses impacted by Coronavirus included deferring the deadline to pay the second payment on account for the tax year 2019/20 from 31 July 2020 to January 31 2021.
Answer:
In addition to this, the Chancellor announced a further change in September 2020, with the ability to defer payment further with a 12-month Time to Pay extension, for those impacted by Covid-19. This now means that those payments deferred from July 2020 and those due in January 2021 will now be able to be spread over the next 12 months subject to HMRC agreement, under a Time to Pay arrangement.
If you don’t agree a Time to Pay with HMRC, then the July 2020 payment on account (if you deferred this and it hasn’t yet been paid) together with the balancing payment, will be due on 31 January 2021. Alongside this, you will also be required to make your first payment on account for the 2020/21 tax year (which is calculated at 50% of your 2019/20 tax liability). Effectively you will be paying the equivalent of a whole years’ tax in one go under this scenario.
If you have been impacted by Covid-19 and do agree a Time to Pay extension with HMRC, then the July 2020 payment on account and the balancing payment from 2019/20 can be paid in 12 monthly instalments before 31 January 2022. As it stands, you will still have to pay your first payment on account for the 2020/21 tax year. To facilitate this, a tax return will need to be submitted and a Time to Pay agreement reached before the 31 January 2021 deadline.
If you are wishing to agree a Time to Pay with HMRC, the January 2021 Self-Assessment tax return will still need to be filed on time by 31 January 2021. It is usual procedure that HMRC will not discuss a Time to Pay arrangement until this tax return has been filed.
Whilst the deadline for submitting your tax return is 31 January 2021, HMRC are always very busy during this time, so getting your affairs in order early will greatly help you. It is understood that those with a tax debt of up to ￡30,000 will be able to set up a payment plan online over 12 months to January 2022, if they are facing difficulties in paying. Those with debts over this amount will need to speak to HMRC to set up the plan, which can be an arduous task contacting HMRC during these busy times. Obviously, it will be important to understand your liability as soon as possible, especially if you wish to consider electing to make a Time to Pay arrangement and so getting your tax return prepared as soon as possible becomes even more important.
For those who agree a 12-month Time to Pay arrangement with HMRC, no penalties will be levied, although interest is usually charged on Time to Pay arrangements.
Whilst It may appear beneficial for everyone to opt for an additional 12-month Time to Pay extension, careful consideration should be given as it may be useful to pay part, if not all the payment before the extended deadline. You will need to understand your liabilities before making this decision. Once you know what you owe HMRC, you can consider your cashflow and likely receipts and payments going forward.
When agreeing a Time to Pay arrangement with HMRC, it is important to only agree what you can afford. If an agreement plan is not kept, HMRC are less likely to agree a revised plan. Similarly, if you have agreed a plan that was affordable at the time of agreement and your circumstances change for the worst, it is important to notify HMRC as soon as possible, before a default occurs.
Allowing yourself as much time as possible to get your affairs in order will give you more breathing space to plan any future payments. Until your 2019/20 liability is known, you will not be able to consider this. Ultimately the tax will need to be paid, and it will be down to personal circumstances as to whether to pay this in January 2021 or delay this further by paying in agreed Time to Pay instalments throughout 2021.