Don’t let looming January tax bill overshadow your Christmas

The Association of Taxation Technicians (ATT) is reminding individuals in self assessment who are worried about paying their January tax bill, that enhanced ‘Time to Pay’ arrangements are available this year because of COVID-19. Agreeing a Time to Pay plan with HMRC allows an individual to spread their January bill over the next 12 months.

The enhanced Time to Pay scheme was first announced back in September as part of the Chancellor’s Winter Economy Plan.1 It came after an earlier announcement which permitted those in self assessment to defer their July 2020 payment on account if they were finding it difficult to pay due to the impact of COVID-19. While this provided many self assessment taxpayers with welcome cash flow relief, those who opted to defer are now facing larger than usual tax bills in January 2021 as they will have the usual amount to pay – plus anything deferred from July.

Jeremy Coker, ATT President, said:

“Do not let worries about paying your tax in January spoil your Christmas.

“The essential thing is to get your self assessment tax return in to HMRC by the 31 January 2021 deadline - even if you do not think you can pay all the tax at once - because once the tax return is filed you can apply to HMRC for a Time to Pay arrangement.

“HMRC have expanded their online service so that individuals who owe less than £30,000 and do not already have a Time to Pay arrangement in place can apply for one online. Telephone HMRC2 if you cannot use the online service, but do not leave it until the last minute as HMRC phone lines will be very busy.”

To qualify for a Time to Pay payment plan, HMRC guidance says that individuals should apply within 60 days of the normal payment deadline – so 1 April 2021 [60 days since 31 January 2021]. But the ATT recommends that taxpayers apply before 1 March 2021 because late payment penalties are added to any unpaid tax at that point. These can be avoided if a payment plan is agreed in advance with HMRC.

Where a payment plan is agreed, and the taxpayer sticks to it, HMRC will not charge any further late payment penalties, although interest will run on any amounts of tax unpaid at 1 February 2021.

The 31 January 2021 is also the deadline for making the first payment on account for the current 2020/21 tax year.

Jeremy Coker continued:

“Payments on account are based on the previous year’s tax profits so it is also important to consider whether, because of COVID-19, your profits for 2020/21 will be lower than those in 2019/20. If so, then you can also apply to reduce your payments on account for 2020/21 which will help with cash flow at this difficult time.”

Notes for editors

1. See final paragraph of section 3.2 ‘Easing the burdens on business’.

2. The self assessment payment helpline number is 0300 200 3822.

3. HMRC guidance on paying your self-assessment tax bill can be found here.

4. Further guidance on paying January tax bills is available from The Low Incomes Tax Reform Group (LITRG).

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