Deferred your tax

You took advantage of HMRC’s tax deferral schemes for VAT and income tax self-assessment because of coronavirus. But what options are there to pay and when is the best time to do it? Brona MacDougall takes a closer look

Naturally, before you pay tax you want to look at your cashflow over the coming months to work out when you’ll be able to pay. The obvious option is to put make use of HMRC’s extended payment deferrals. That gives you breathing space for business to pick up and for cashflow to improve. On the other hand, it means relying on unknowns, like the state of the economy as we head into Brexit and the possibility of further lockdowns. So you need to have a plan in place to ensure adequate funds are available when needed.

VAT
While the VAT deferral period finished on 30 June 2020, any deferred VAT was original due to be paid in full on or before 31 March 2021. Following the Winter Economy Plan you can now choose to make payment of this deferred quarter by way of instalments up to the end of March 2022, interest free.

You will need to opt-in to the scheme, and for those who do, this means that your VAT liabilities due between 20 March and 30 June 2020 do not need to be paid in full until the end of March 2022.

Those that can pay their deferred VAT can still do so by 31 March 2021.

Income tax
HMRC allowed you to postpone the second self-assessment payment on account for 2019/20 if you were detrimentally affected by coronavirus. Originally, it was due by 31 July 2020 but an automatic deferral was instituted which meant that you did not have to pay it until 31 January 2021.

Now, following the Winter Economy Plan the July 2020 payment to account, along with the January balancing payment and the first payment to account in respect of 20/21 can be paid by way of up to 12 monthly instalments to 31 January 2022.

Where the total tax due does not exceed £30,000 and the taxpayer has no outstanding tax returns or tax debt this can be agreed automatically by a self-help online application.

If the tax due exceeds £30,000 or the taxpayer needs longer to pay, the telephone service will still be available to agree a bespoke payment plan.

There are no interest or penalties imposed in relation to the July 2020 payment to account provided it is paid by 31 January 2021, however from 1 February 2021 interest at 2.6% simple p.a. will apply to the instalment payments if this option is chosen. If you are considering this option and would like an idea of the interest payable, please get in touch and we can calculate this.

If you opt to make payment by instalments you need to set up your payment plan no later than 1 April 2021.

Pay sooner? You have the option to settle in full at any point before January 2021. Use HMRC’s online service to do this.

If you’re still struggling with finances because of coronavirus, or for any other reason, when you get to the VAT or income tax deadline, get in touch with HMRC’s TTP service. It’s always best to do this as soon as you realise you won’t be able to meet a payment deadline.

CONCLUSION
In order to prevent a large cashflow problem in January and March 2021 arrange payment by instalment using the online TTP claim form.  There is going to be a charge to interest if you opt for self assessment instalments, but there is no interest charged if you opt for to pay your deferred VAT quarter by way of instalments.