Last updated: 19 February 2021
The 31 January 2021 deadline for filing 2019/20 tax returns is rapidly approaching. If you are concerned about either filing your return, or getting your tax paid, there are various sources of help available to you which might help you to manage your affairs at this difficult time.
Filing your tax return and paying tax are two separate issues – although obviously each is highly dependent on the other. The first part of this article will look at some of the things that might help you to get your return filed, and the second at how to pay the tax. However, even if you can’t file your return yet, you should be thinking about how you intend to pay your tax as interest and surcharges can build up quickly.
Filing your return
If you are struggling to file your return on time you need to be aware of HMRC’s recently announced penalty waiver. Other options to help you file your return might involve including estimated or provisional figures.
As noted above, the deadline for filing 2019/20 self-assessment returns is 31 January 2021. Normally, a return filed after this date would attract an automatic £100 late-filing penalty. However, on 25 January 2021, HMRC announced that they would will waive these late filing penalties– provided that returns are filed online on or before 28 February 2021.
Although this is very welcome, you shouldn’t use this as an excuse to defer filing until the end of February. The waiver only applies to this £100 penalty and your tax bill is still due by 31 January 2021. If you leave payment too late you could be hit with additional charges (we discuss below whether you might want to consider making an estimated payment to stop or reduce the amount of interest and surcharges accruing).
If you fail to file by 28 February 2021, then HMRC will issue a £100 penalty. You can appeal this, but you will need to have a reasonable excuse. There will be further penalties issues if you have still not filed your return on or before 30 April 2021. At that point HMRC can start to issue daily penalties of £10/day for up to 90 days – or until the return is filed. Once the return is over six-months late, the penalties rise to the higher of £300 or five per cent of the unpaid tax.
If you are struggling to file your return because you are missing information – or perhaps because of coronavirus you can’t access all the information you need - then you might want to consider whether it would be appropriate to use either estimated or provisional figures.
An estimated figure is one which is a best and final guess with no intention to update the return later. A provisional figure is what to use if you will be able to give a corrected figure at a later date – perhaps when you can access any information not currently available to you.
If you use a provisional figure, then you should tell HMRC by putting a ‘x’ in box 20 on your self-assessment return. It is also necessary to make a note in the Any other information box (also known as the white space) to explain why any provisional figure has been used and when the final figure is expected to be available. You should let HMRC know the final figure as soon as you are able to do so.
If you have included an estimated figure, you don’t need to put anything in box 20, but you should example why an estimate has been provided in the Any other information box.
A longer article on using estimated or provisional figures (written for tax agents) is available here.
Paying your tax
Even if you haven’t managed to file your 2019/20 tax return, you should think about how you are going to pay your tax. The penalty waiver applies to the first late-filing penalty only. Late tax payments can attract further interest and surcharges.
Interest will be charged at 2.60% per annum on unpaid amounts from 1 February 2021. More significantly, a 5% surcharge will also be added for late paid tax after a certain date. Generally the charge is applied to any amount still unpaid on 2 March. However, in February, HMRC confirmed that they would delay the imposition of this charge for 2019/20. To avoid the 5% surcharge, taxpayers must settle their tax - or have agreed a payment plan as set out below - by midnight 1 April 2021.
Time to pay arrangements
If you are worried about submitting your 2019/20 January tax return because you know you will struggle to pay, then HMRC’s enhanced Time to Pay arrangements might help. They have been usefully adapted this year because of coronavirus.
Agreeing a Time to Pay plan with HMRC will allow you to spread your 31 January 2021 bill over the next 12 months. However, in order to apply for a Time to Pay agreement you must get your self-assessment tax return in to HMRC first. You cannot apply to HMRC for a Time to Pay arrangement until your return has been filed and it is known how much tax is due.
The enhanced Time to Pay scheme was first announced back in September as part of the Chancellor’s Winter Economy Plan. 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 coronavirus. While this provided many self-assessment taxpayers with welcome cash flow relief, those who opted to defer that payment 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.
If you have less than £30,000 of tax still outstanding under self-assessment (including any amounts deferred from 31 July 2020) then you should be able to use HMRC’s self-service Time to Pay facility to secure a plan to pay over an additional 12 months. If you can’t use the online service, you can use HMRC’s Time to Pay Self-Assessment Helpline to agree a payment plan instead. You may find this document a helpful guide to the kind of information HMRC will ask for on the call.
Deadlines for Time to Pay
You can apply for a Time to Pay arrangement up to 60 days after the normal payment deadline. This will be 1 April 2021 for any self-assessment bills due on 31 January 2021. Normally late payment surcharges would be added to unpaid bills in March but, for 2019/20 only, HMRC has deferred the 5% surcharge so it will not apply provided that you agree a plan by midnight on 1 April 2021. This means that the deadline for agreeing a Time to Pay arrangement is aligned with the deadline for the 5% surcharge.
Where a payment plan is agreed, and the taxpayer sticks to it, HMRC will not charge any further late payment penalties. Interest will, however, run on any unpaid tax from 1 February 2021 until payment.
Further guidance on paying January tax bills is available from The Low Incomes Tax Reform Group (LITRG).
Reducing your payments on account
Your self-assessment tax bill due on 31 January 2021 is made up of two elements: the amount still to pay for 2019/20 and a payment on account for 2020/21.
Payments on account are based on the previous year’s tax profits so it is also important to consider whether, because of coronavirus, 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 your cash flow at this difficult time.
Guidance on payments on account is available on GOV.UK.
Paying an estimate
Another option to manage and reduce the risk of interest and surcharges is to pay to HMRC an estimated amount and then either top up or claim back any difference once you know the exact amount due. Interest will still accrue if you have under-estimated
Since making an accurate estimate is hard, you may wish to seek advice from your tax adviser or accountant.
If you know that you will be able to establish your exact tax bill very soon, then you could opt to wait and pay the exact amount when you know it and accept that you will incur some interest charges.
Late payment interest runs at an annual rate of 2.60% so, for example, a bill of £5,000 paid by 28 February 2021 would at most have an extra £11 of interest added. Just make sure you pay enough on or before midnight on 1 April in order to avoid the risk of a substantial 5% surcharge being levied on any update tax at that point.