As part of the Chancellor's Coronavirus support package taxpayers were permitted to defer payment of the July 2020 income tax Payment on Account instalment until 31 January 2021. However, three lockdowns later and HMRC have become increasingly aware that a large number of taxpayers are still needing to delay not only that payment but also the tax payments that would normally be due on 31 January 2021 namely:
- the balancing income tax payment for 2019/20,
- the first income tax payment on account for 2020/21,
- any capital gains tax for 2019/20 and
- classes 2 and 4 NIC for 2019/20.
Therefore HMRC have set up a method by which further deferment may be applied for online, separate from their usual 'Time to Pay' arrangements facility. Taxpayers unable to pay their tax bills would normally need to call HMRC to discuss a payment plan but this method of applying online makes the process easier.
To use this automatic process the taxpayer needs to set up a Government Gateway account and agree to pay the tax in monthly instalments by direct debit, with the aim of clearing the debt within 12 months. Other conditions include:
- the 2019/20 tax return must have already been submitted,
- the submission of all tax returns must be up to date,
- the debt must be of at least £32 but less than £30,000 and,
- no other tax instalment plans must be in place (i.e. under the usual "Time to Pay" arrangements).
Although payments are expected to be made monthly the system does allow flexibility such that the taxpayer can make additional payments should circumstances allow. However, should the arrangement need to be amended later then HMRC will need to be contacted by phone to discuss revised arrangements. The instalment plan must be set up no later than 60 days after the due date for the tax, which realistically means that it needs to be in place by 31 March 2021. All the late paid tax will accrue interest at 2.6% to the date of full repayment. Should the taxpayer not keep to the arrangement and fall behind with the payments then HMRC has the right to ask for the outstanding amount to be repaid in full.
The facility may be a lifeline for many but it should be noted that care needs to be taken should the application include deferment of class 2 NIC due for 2019/20. The rules covering NIC payments mean that if this NIC is not paid by 31 January 2021, then the year will not count as a completed year in the taxpayer’s NIC record for state pension purposes.
Care also needs to be taken as to when to apply. Tax return submissions normally take up to 72 hours to be processed. Therefore, should the taxpayer apply at the same time as submitting their return for example, then the application may be rejected.
Should the total tax debt be more than £30,000 or the 31 March 2021 deadline is missed then the taxpayer cannot take advantage of this online facility and must go through the normal 'Time to Pay' process. There is also no specific online facility for corporation tax payments and as such the general 'Time to Pay' arrangements will need to be sought. However, it would appear that HMRC are being flexible with these arrangements and in some cases are agreeing to three months interest free extensions on payment dates.
Update: HMRC have updated the guidance here - https://goldstagaccounts.co.uk/resources/self-assessment-late-payment-penalties