Important changes to the January 2021 Self-Assessment Tax Bill

HMRC has recently expanded an online service which now allows more people to set up a payment plan and spread the payment of their January 2021 tax bill over 12 months. You can use the online payment plan to help ease the financial impact you may be facing as a result of the coronavirus pandemic. Keep reading and we’ll explain everything you need to know.

What changes have taken place to self-assessment tax returns as a result of COVID-19?

One of the government’s support measures to help businesses and individuals during the coronavirus pandemic was to defer the second payment on account for the 2019/20 tax year from the 31^st July 2020 to the 1^st January 2021. For many people, the January 2021 tax payment will consist of the balancing payment for the 2019/20 tax year and the first payment on account for the 2020/21 tax year. If you deferred the 2019/20 second payment on account until the 31st January 2021 as part of the governments initiative, this would also be due.

What is a Time to Pay arrangement?

Many small businesses and individuals have suffered financially due to the coronavirus pandemic, and some may have been worried about their upcoming January tax bill. As part of the Winter Economy Plan, Chancellor Rishi Sunak announced the Time to Pay extension with HMRC for those unable to pay their January tax bill in one instalment.

The Time to Pay arrangement allows payments deferred from July 2020 and those due in January 2021 to be spread over 12 months and paid in smaller instalments. HMRC has also recently expanded their online service so that you can set up a payment plan without the need to discuss it with HMRC first or provide details of current expenditure and income.

After you complete and submit you tax return for the 2019/20 tax year, you can set up your payment plan if required. Please be aware the deadline for submitting your online self-assessment tax return is midnight on the 31^st January 2021, and you must file a tax return before you can set up a Time to Pay arrangement.

If you choose to set up a Time to Pay extension with HMRC, you can pay the July payment on account and the balancing payment from the 2019/20 tax year in 12 monthly instalments. At the moment you are still required to pay your first payment on account for the 2020/21 tax year.

Who is eligible for a Time to Pay arrangement?

The Time to Pay extension is open to everyone as long as:

• You owe £30,000 or less;
• You do not have any other payment plans with HMRC;
• You do not have any other debts with HMRC;
• It’s less than 60 days after the payment deadline;
• You have to pay the instalments by Direct Debit.

How to apply for a Time to Pay arrangement?

To set up a Time to Pay payment plan, you will need your Government Gateway account details to log into HMRC’s online tool. You will be asked whether or not you would like to pay a lump sum upfront and the number of instalments that you want to pay and over what period (up to a maximum of 12 months). Don’t worry, if you don’t have a Government Gateway account. You can set this up before you begin.

If you cannot use HMRC’s online tool, you can still contact them to discuss setting up a Time to Pay plan. You can do this by calling the self-assessment payment helpline or their coronavirus helpline.

What to consider before agreeing to a Time to Pay arrangement?

Until you know your 2019/20 liability, you will not be able to determine whether a Time to Pay arrangement is beneficial to you and your circumstances. Before you commit to a payment plan, check whether you can reduce the payment on account relating to the 2020/21 tax year.

For example, if your business has suffered and your self-employed, you could reduce your payment on account if your profits have decreased and therefore less tax is due. Reducing the overall amount owing can make a payment plan more manageable. Please remember you must include any taxable coronavirus grants you may have received before working out if you can reduce your payment on account.

What happens if I am receiving universal or tax credits?

If you are currently receiving universal credit, tax credits or any other means-tested benefits and have an upcoming tax bill to pay in January 2021 – you can contact HMRC and explain your situation. If you do not have enough extra income to set up an instalment agreement, HMRC may agree you do not need to make any payments towards the bill in the short term or until your income position changes.

Is there any interest due on instalments?

Arranging a payment plan with HMRC does not mean you can avoid paying interest charges. Currently, the interest rate is 2.6% per annum, and this will be charged from 1^st February 2021 on amounts that are unpaid by 31^st January 2021 (until the outstanding payments are settled).

Our specialist Personal Tax team is here to help!

For over 20 years, Churchill Knight & Associates Ltd has offered specialist accountancy services to professionals in the UK. Our dedicated Personal Tax team has completed over 20,000 self-assessment tax returns, and they are on hand to provide you with help and advice. Whether you need information on calculating your tax liability, or you’re seeking more advice on Time to Pay arrangements – get in contact today. Please give our team a call on 01707 871622 or complete the short form here.