At a time of economic unrest and widespread financial difficulties caused by a number of factors, including flooding and the outbreak of COVID-19, we believe that it is important to provide you with guidance on the options being made available by HMRC to assist taxpayers facing such difficulties at this time.
Time to Pay Arrangements
HMRC has set up a new telephone helpline to support businesses and self-employed people concerned that they may not be able to pay their tax due to COVID-19.
Any business or self-employed person who has such concerns can call 0800 024 1222 to get practical help and advice on this matter, as well as to discuss arranging a payment plan under which to pay their tax liabilities. The telephone lines are open between 8am-8pm Monday to Friday and 8am-4pm on Saturdays. It is important to contact HMRC before payments become due where possible.
This helpline is available only to those who are unable to pay due to COVID-19, however, there are existing options available for contacting HMRC about time to pay arrangements. These are still available to those who have difficulty making payment for other reason. The phone line for taxpayers having difficulty as a result of other cashflow difficulties is 0300 200 3835, while large businesses with a Customer Compliance Manager should contact that individual.
We have been in contact with HMRC and they have advised that the call must be made by the individual or business, as HMRC will not allow agents such as Smith Cooper to discuss these matters on their behalf. However, we are here to provide you with guidance and support in a number of ways, such as preparing the cashflow forecasts and asset statements referred to below, which will be required before a payment arrangement can be discussed with HMRC. HMRC will also be more amenable to agreeing payment plans if all returns are up to date and we can of course assist with this.
It should be noted that while time to pay arrangements may be suitable as short-term solutions, wider strategic planning and funding requirements should be considered by businesses for the medium to long term.
HMRC may be prepared to implement an instalment arrangement if they feel that you genuinely cannot pay because of temporary setbacks, so before making the call you will need to have the following information:
- Your UTR (Unique Taxpayer reference) or VAT reference number
- The amount of the tax bill that you are having difficulty in paying
- How long you will need to make the payment (HMRC will usually limit arrangements to 12 months)
- Your bank details
You will also be asked to provide the following which will enable HMRC to decide whether or not they can offer a time to pay arrangement:
- Cashflow forecasts and details of your income and expenditure so HMRC can check affordability
- A statement of assets and liabilities showing details of your assets, savings, investments and outstanding liabilities
- What steps you have taken to try and obtain the funds to pay the tax liability
When contacting HMRC to discuss a time to pay arrangement, individuals and businesses should expect and be prepared for robust questioning, as HMRC will have personal questions with regards to affordability and the reasons for the difficulty in making payment. It is not yet known to what level HMRC will be more sympathetic in their questioning under the current environment. In more complex cases HMRC may ask for evidence before a decision is made.
Late payment interest will still be charged on any amounts paid late, however, provided the arrangement is agreed before penalty trigger dates occur, then no late payment penalties will be levied provided you fully comply with the payment plan.
It is vital to ensure compliance with the agreed payment plan because if you miss a payment, HMRC will cancel the arrangement and commence debt recovery proceedings. Any penalties suspended by the arrangement will also become payable. If you are going to have difficulty in complying with the payment plan, it is important to contact HMRC to discuss this with them before the payments become due.
With regards to future tax liabilities, time to pay arrangements are agreed on the basis that future tax liabilities will be paid in full as they become due. As such, if such liabilities arise while a payment plan is in place and you will have difficulty settling these additional liabilities in full, you will need to contact HMRC to discuss potentially absorbing these additional liabilities into the existing payment plan. This is likely to result in an increase to the monthly payment to ensure that the liabilities are settled, but not doing so could affect the existing payment plan.
HMRC may decide based on the information that you provide that you can afford to pay and they will expect your tax bill to be paid at the due date.
Self-Assessment – Online Payment Plans
HMRC have also recently implemented an online service which means you can now apply to set up a self-assessment payment plan online, whereby instalments must be made by Direct Debit.
You can consider setting up a payment plan online, provided you meet the following conditions:
- The debt relates to a self-assessment liability only (including payments on account)
- Owe £10,000 or less
- Have no other tax debts
- Have no other ongoing HMRC payment plans
- Be less than a month late in paying the tax liability
As part of the online application, you will be asked:
- Whether you can afford to pay anything up front
- How much you can afford to pay each month (note – you are not asked for income or expenditure details)
- How many months you want to pay over (maximum of 12 months)
- Which day of the month you want to make each payment
You will need a government gateway user ID and password to set up a payment plan online, but if you don’t already have one you can create one when you set up a payment plan. It should be noted that Smith Cooper don’t have the option to do this using our agent online services account, so our online access cannot be utilised for this purpose.
Please note that the same conditions apply in terms of ensuring compliance with these arrangements and the charging of late payment interest and penalties.
Self-Assessment – July Payments on Account
After some initial confusion, the government have advised that all taxpayers under self-assessment will be entitled to a deferment of their 31 July 2020 payment on account until 31 January 2021. The original guidance indicated that this deferment only applied to self-employed individuals.
There will be no requirement to apply for this deferment as it will be automatic, while no penalties or interest will arise in respect of the payment on account during the period to 31 January 2021.
Where individuals do have the funds to make the 31 July 2020 payment by the usual date, they can still make this payment. It may be beneficial to cashflow in the long term, if short term cashflow support isn’t required, because there is no indication that the usual amount payable in January 2021 will be reduced in any way. As such any deferment may significantly increase the amount payable in January 2021.
With this in mind, there may be individuals who have already had a reduction in income for the 2019/20 tax year prior to the difficulties encountered as a result of the floods and COVID-19, but would still prefer to make their payment on account in July 2020 to avoid further cashflow issues down the road.
As such there may be scope to reduce the second payment on account which is due by 31 July 2020 towards the tax liability for 2019/20. We would therefore encourage these individuals to provide us with the information to enable us to prepare their tax returns as soon as possible after the end of the tax year on 5 April 2020.
We would then be able to prepare tax returns before the 31 July 2020 payment becomes due and therefore reduce this payment on account as appropriate.