Time to Pay – information for anyone struggling to pay their self assessment tax bill

Time to Pay – for those struggling to pay their Self Assessment tax, filing it as soon as possible is the first action you should take

Time to pay is an arrangement where HMRC allows those struggling to pay their tax bill on time to spread it out in instalments. For Self Assessment tax returns, where the ability to pay has been impacted by COVID-19, Time to Pay arrangements can now be set up automatically online, electing to spread up to £30,000 over a 12-month period.

People often struggle to get their Self Assessment returns filed by the annual 31 January deadline. This year it appears that there are even more people struggling to meet the deadline. As of 25 January, over 3 million people were estimated to still need to file a Self Assessment Tax Return (based on HMRC figures).

As a small concession, HMRC has confirmed that the initial late filing penalty will not apply this year for any Self Assessments filed by 28 February 2021. The £100 initial penalty is usually automatically applied to any late returns after 31 January.

However, it is important to note that interest will be charged on any amount outstanding from 1 February, so it is always worth paying tax due as soon as possible, to avoid such charges. When a tax return is submitted, interest will always be charged on any amount overdue, which in the event of a late submission is backdated to the due date.

Time to Pay – help for those with financial difficulties

For anyone who is experiencing financial difficulties and unable to pay their tax bill on time, they can apply for a Time to Pay arrangement. To be able to apply or this, a 2019/20 tax return will first need to be filed.

Time to pay arrangements are usually negotiated between HMRC and the taxpayer. For the 2019/20 tax year, HMRC have made some changes to the process. Where Covid-19 has impacted the ability to pay, a 12-month Time to Pay arrangement can be automatically set up online, for arrears of up to £30,000.

To take advantage of this, £30,000 must be the maximum figured owed to HMRC and no other existing arrangement must be in place.

HMRC has stated that as of 26 January 2021, more than 42,000 taxpayers have used the automatic service, without needing to call HMRC, which totals almost £130 million of tax.

Negotiating Time to Pay arrangements over £30,000 or for longer than 12 months

In instances where the amount owed is over £30,000, or more than 12 months is required to repay the amount, this is still possible, but this needs to be negotiated directly with HMRC. In the first instance, HMRC should be contacted through their Self Assessment Payment Helpline.

HMRC will look at what can be afforded to be paid and use this to work out how much time is required. This will be based upon an income and expenditure assessment considering your income, disposable assets and expenditure. 90% of arrangements are completed successfully.

Requesting to pay a lower amount of tax on account

The first payment on account for the 202/21 tax year is also due on 31 January 2021. This is calculated based upon 50% of your 2019/20 tax return. Where you are required to make a payment on account and know your 2020/21 tax bill is going to be lower than the previous tax year, this payment can be reduced. This is particularly relevant if you have been impacted by COVID-19, perhaps as you have not been trading, or have traded at a reduced capacity. Please contact us if you require assistance in reducing your payment on account.

Time to Pay and tax arrears – a note of caution with National Insurance contributions

Please note that Class 2 National Insurance contributions are included in 2019/20 Balancing Payments. It is important therefore to make sure that anyone who is agreeing a Time to Pay arrangement or could not pay all their 2019/20 Self Assessment liabilities has paid the necessary National Insurance Contributions by 31 January 2021.  Otherwise, this could affect contributary benefits, including state pension allowances.

Time to Pay for other tax bills

Whilst you are currently only able to automatically apply for Time to Pay online for Self Assessment tax payments (up to £30,000 over 12 months), Time to Pay is also available for other tax payments, which including companies that have defaulted on payments to settle Corporation Tax, VAT and/or PAYE.

HMRC should be contacted direct to discuss agreeing such arrangements. Alternatively, we can assist individuals and businesses.

Advice to taxpayers with arrears

Anyone likely to experience difficulties with payments to HMRC is recommended to get their affairs in order as soon as possible, to avoid costly penalties and fines.

If you are suffering financial hardship and will not be able to make payments to HMRC on time, it is always worth discussing your situation with HMRC. HMRC would expect that any outstanding tax returns are firstly submitted before discussing your individual circumstances.

Ahead of any discussions with HMRC, professional advice may help to ensure all available tax reliefs have been accounted for and your liabilities are correct.

How Alexander & Co can help

Alexander & Co can provide support to you and your business on a wide range of areas of taxation, accountancy and business advisory. As well as undertaking any tax return submissions, we will make sure you are paying the correct amount of tax and taking advantage of all available tax incentives and reliefs.

We can also advise on other aspects of your business, advising on the tax efficiency of its structure and in the case of self-employed workers, whether it would be more beneficial to operate as a limited company.

For more information on how we can assist you, please get in touch today.

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