Time To Pay HMRC

HMRC have an on-line facility to defer payment of Income Tax due on 31st January. Some taxpayers using the online service to defer tax are getting rejected.

HMRC anticipated that a large number of taxpayers would need to defer tax due in January, so created an instalment mechanism to allow individual taxpayers to apply for time to pay the tax debts now falling due.

To use this automatic process the taxpayer must agree to pay the tax monthly by direct debit, with a target of clearing the debt within 12 months. The taxpayer must also meet all of these conditions:

• has submitted their 2019/20 self-assessment tax return

• has no earlier tax returns outstanding

• their tax debt must be at least £32 and not exceed £30,000

• they have no other tax instalment plans in place.

If any of these conditions are not met the system will deliver the result: “not eligible for an online payment plan”.

One problem could be that HMRC has the 2019/20 SA tax return, but has not processed it yet, so the tax liability for the year hasn’t yet fed into taxpayer’s personal tax account. This can take up to 72 hours after the SA return is submitted.

How to apply

To take advantage of the self-serve tax deferral, you need to log in to their government gateway, for which they will need their user ID and password. The user ID can be set up as part of the application process. Tax agents cannot use the automated system on behalf of their clients.

You can choose how many instalments they need to spread their tax bill over in 2021, but all the late paid tax will accrue interest at 2.6% until it is paid.   

The instalment plan must be set up no later than 60 days after the due date for the tax, which means the time to pay agreement must be in place by 31 March. If the 2019/20 tax debt is still outstanding at 31 March 2021, and no payment plan is agreed, an automatic penalty will be imposed at 5% of the outstanding tax.   

Speak to HMRC

If the self-serve tax deferral system says “no”, you can call the self-assessment payment helpline on 0300 200 3822 to negotiate a reasonable time to pay plan. This service is open from 8am to 6pm on weekdays.

This helpline must always be used if your total tax debt exceeds £30,000.

Before calling HMRC have all of the following to hand:

• Your UTR number or NI number

• Your name and address

• A contact telephone number

• Details of the tax payment to be deferred

• Details of any tax repayments you might be waiting for.

Look to the future

You should also consider the level of payment on account for 2020/21, which forms part of the 31 January 2021 tax debt, to check whether it is reasonable in view of the expected profits for the current tax year.

Although trading volumes in 2020 were reduced for many businesses due to the Covid-19 pandemic, the 2020/21 trading income will include three SEISS grants paid so far, and any local authority business grants received.   

NIC issues

Be careful when postponing class 2 NIC due for 2019/20, as if that is not paid by 31 January 2021, the tax year will not count as a completed year in the taxpayer’s NIC record.

VAT

Clients who are VAT registered may also have VAT liabilities that have been deferred from payment in the period 20 March to 30 June 2020, which now need to be paid by 31 March 2021. This VAT debt can be delayed further using a different online deferral system, which will open in the next few weeks.     

If you would like any further information on any of the above, do not hesitate to contact us.