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Deferring Tax Payments

Many business owners took advantage of deferred tax payments during 2020. Whilst offering valuable cash flow support last year, many of these delayed payments are now payable by 31 January 2021.

Individuals who elected to defer payment now face a tax payment potentially comprising of:

  • balancing income tax payment for 2019/20
  • second income tax payment on account for 2019/20 – deferred from July 2020
  • first income tax payment on account for 2020/21 – half of total 2019/20 liability
  • any capital gains tax for 2019/20
  • classes 2 and 4 NIC for 2019/20

Payment Plans

In anticipation of tax payers needing to defer payments, HMRC is offering time to pay via a Self Assessment payment plan. This involves a monthly direct debit scheme at a level which enables tax debts to be cleared within 12 months. To be eligible for the scheme, individuals must have:

  • submitted their 2019/20 self-assessment tax return,
  • no earlier tax returns outstanding,   
  • a tax debt of at least £32 and not more than £30,000, and
  • no other tax instalment plans in place.

All of these criteria must be met in order to create a payment plan. Applications to pay by instalments should be made online no later than 60 days after the due date for the tax. This means that the agreement is in place by 31 March 2021. If no payment plan exists and a tax debt remains outstanding by this date, a penalty of 5% of the outstanding tax is automatically incurred.

Online Application

“To take advantage of the self-serve tax deferral, the taxpayer needs 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,” explains accountingweb. “The taxpayer 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.”   

You can access the online deferral system here.

Application Rejections

Prior to applying for deferred payments, individuals should ensure that they meet all of the required criteria. It’s important to note that it can take up to 72 hours for the tax liability from a Self Assessment return to be allocated to a tax payer’s personal account. This delay has led to some applications being rejected as the automated system views such records as being incomplete despite submission of the tax return.

Processing tax returns is also delayed if manual intervention is required by HMRC. This occurs when transferable marriage allowance or entrepreneurs’ relief is applicable, for example.

Should an online application be rejected, it is possible to negotiate time to pay with HMRC by calling the self-assessment payment helpline on 0300 200 3822. 

Do you have queries about the HMRC deferral scheme? Talk to the experts at Hargreaves Owen. We’re here to offer friendly, knowledgeable advice.

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