We thought we would take this opportunity to summarise the different tax deferrals that are available and what the implications are.
Self assessment
As part of the Chancellor’s winter economy plan, self-assessment taxpayers will be able to defer taxes due in January 2021 by up to 12 months.
A deferral had already been provided for the second payment on account due on 31 July 2020 for the 2019/20 tax year to 31 January 2021. The Government has now further announced that it will be possible to agree a time to pay arrangement over the 12 months following 31 January 2021 for tax liabilities of between £32 and £30,000.
This second deferral may now, therefore, comprise the following tax payments:
- second payment on account for 2019/20;
- balancing payment for 2019/20; and
- first payment on account for 2020/21.
The enhanced arrangement will enable you to spread your tax payments over 12 (or less) monthly instalments rather than an outright deferral to 31 January 2022. HMRC have set up an online facility to request this arrangement which can be found here. Please note that you will need a Government Gateway account set up in order to access this service.
In order to be eligible to apply for the enhanced time to pay arrangement, you must have filed your 2019/20 tax return and have no other outstanding tax returns or tax debts. The arrangement needs to be set up no later than 60 days from the due date (i.e. by 1 April 2021). Interest will be charged on the deferred liability commencing from 1 February 2021, although late payment penalties will not be levied.
If you cannot use the online service, owe more than £30,000, or, if you require longer than 12 months to repay your debt, then the online facility will not be available. You can, however, call the self-assessment payment helpline on 0300 200 3822 to discuss an alternative time to pay arrangement.
VAT
In the Chancellor’s winter economy plan last week, two major changes to previous COVID-19 related VAT reliefs were announced.
Businesses that took advantage of the VAT payment deferral earlier this year will be given extra time to pay under the so called ‘new payment scheme’.
Rather than paying deferred amounts in full by the end of March 2021, they will be able to choose to make 11 equal, interest-free instalments over the financial year 2021-22 instead. All businesses that took advantage of the VAT deferral will be eligible, though they will have to opt in; an opt-in process is expected to be put in place in early 2021.
PAYE/NIC
- It is possible to contact HMRC to agree a deferral of PAYE and NIC payments.
- Originally, HMRC had told us that no interest or penalties will be charged for deferred PAYE and NIC payments. We now understand, however, that HMRC are charging interest on the deferred amounts as a matter of course. No penalties will be applied providing filings are made on time.
- Where you have agreed a deferral but have also made a claim under the coronavirus job retention scheme for furloughed employees, you will still be required to pay the related PAYE and NICs received as part of that grant to HMRC. If this element is not paid over you will be in contravention of the terms of the scheme and could be subject to penalties and interest. If your business is in financial distress such that you are unable to repay the PAYE and NI received from the grant, however, you will need to contact HMRC to see if they will agree a separate time to pay arrangement for this.
Corporation tax
- Although there is no strict deferral process in place for corporation tax liabilities, HMRC is willing to set up time to pay (TTP) arrangements for companies. You will need to contact HMRC to discuss this with them if your payment is imminent. Your corporation tax return must have been submitted to HMRC.
- Unfortunately, this arrangement does not avoid late payment interest, with interest continuing to be charged at 2.6% per annum until the outstanding balance is settled in full.
- Obviously, this is an additional liability for the company, however it may still be worth considering a TTP arrangement for the following reasons:
- The amount of interest being charged is relatively low.
- The cashflow advantage of not having to pay the whole amount out in one lump sum.
- No penalties will be raised unless corporation tax return is filed late.