HM Revenue & Customs (HMRC) are issuing letters to those who submit Self Assessment tax returns, reminding taxpayers that the final date for submission of those returns is 31 January 2021, now less than three months away. However, there are good reasons for completing them now, and certainly by the end of November. This will give taxpayers time to devise a strategy for meeting their tax debt.
The deferral of the July 2020 payment on account means many people are facing a much higher bill in January 2021 than they would normally. Indeed, statistics show that the amounts of Self Assessment payments received by HMRC in July 2020 totalled £4.80 billion compared to £9.34 billion in July 2019, suggesting that a significant number of taxpayers took the opportunity to defer their payment on account.
It is therefore important that people know exactly what level of tax bill they now face and how they are going to meet them. If taxpayers submit their 2019/20 return before the December 2020 statements are issued by HMRC, these will show all payments due on 31 January 2021, and they will know exactly what payments they owe before the 31 January 2021 payment due date. These could include:
- deferred July 2020 payment on account (if it remains unpaid)
- any 2019 to 2020 balancing charge
- first 2020 to 2021 payment on account.
If Self Assessment taxpayers act now and contact HMRC, those who are unable to pay in full by 31 January 2021 can pay their tax by instalments and can set up a Time to Pay (TTP) instalment arrangement, (subject to interest rates set by HMRC, currently 2.6% per annum), without penalty. There is no obligation to declare that the taxpayer has been impacted by Covid-19; however, there are the following requirements:
- No outstanding tax returns
- No other tax debts
- No other HMRC TTP arrangements
- Self-Assessment tax bill is between £32 and £30,000, and
- It is no more than 60-days since the tax was due for payment.
This can be done online without having to contact HMRC directly. However, there is a delay of 48 hours following submission of a return before a TTP arrangement can be set up online. The online application can only be made by the taxpayer – not by their agent/tax adviser.
Late payment penalties are charged when tax remains unpaid after 30 days, six months and 12 months after its due date for payment. These penalties can be avoided if a TTP arrangement is made before the tax becomes due, and all the tax owing under that arrangement is paid on time.
It is therefore key for taxpayers to apply for a TTP arrangement well in advance of 31 January 2021, to avoid any last minute problems with the online system, so that the instalment plan can be agreed prior to the tax becoming due.
Even if the tax owed is in excess of £30,000, it may be possible to make a TTP arrangement with HMRC, but these arrangements cannot be made via the online system and acceptance is not guaranteed.
In these circumstances it is therefore even more imperative that the application is made well in advance of the 31 January 2021 deadline, to ensure that the arrangements are in place by that date and avoid potential penalties.