You took advantage of HMRC’s tax deferral schemes for VAT and income tax self-assessment because of coronavirus. What options are there to pay and when is best to do it?
Budget and cash flow
Naturally, before you pay tax you want to look at your cash flow over the coming months to work when you’ll be able to pay. The obvious option is to put everything off until HMRC’s deadlines, and hope to pay in one go. That gives you breathing space for business to pick up and for cash flow 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 a plan where HMRC’s deadline is the backstop.
VAT
While the VAT deferral period finished on 30 June 2020, any deferred VAT should be paid in full on or before 31 March 2021. HMRC will accept ad hoc payments; there’s no requirement to agree a special arrangement but there’s no financial penalty or black mark on your record if you leave the whole debt to settle on 31 March 2021. HMRC won’t collect your deferred VAT automatically. You have to arrange to make the payment yourself. Tip. Rather than make payments in advance of 31 March consider keeping cash in a separate account in case of emergencies.
Income tax
HMRC allowed you to postpone the second self-assessment payment on account for 2019/20 if you were detrimentally affected by coronavirus. Strictly, it was due by 31 July 2020. The deal is you can pay it on or before 31 January 2021. After that HMRC will charge interest.
Pay in January. If you leave paying deferred income tax to January, remember there’s the balancing payment for 2019/20 on top of your first payment account for 2020/21 to find too. So you might want to act now to make sure your cash flow doesn’t take all the strain in January. Tip. There’s no interest or penalties so long as you pay before 31 January 2021.
Pay sooner. You have the option to settle in full at any point before January 2021. Use HMRC’s online service as usual to do this.
Pay in instalments. You can choose to pay in instalments any time between now and 31 January 2021. It’s simply done by using the online payment system and making ad hoc payments. Alternatively, you could set up a budget payment plan (see The next step ). The procedure for this is slightly different if you are already paying overdue tax through a time to pay (TTP) arrangement. But it may still be possible to include the second payment on account in the arrangement, in which case the sooner you contact HMRC to discuss it the better.
Time to pay. 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 (see The next step ). It’s always best to do this as soon as you realise you won’t be able to meet a payment deadline. Tip. There wasn’t a deferral for corporation tax (CT) but TTP arrangements are allowed for CT too.
You can leave payment until HMRC’s deadlines – 31 January for income tax and 31 March for VAT. There will be no interest or penalties if you pay by then. Alternatively, if you want to avoid a big tax hit all at once consider an HMRC budget plan. If you think you won’t be able to pay on time contact HMRC early and ask for time to pay.
The next step
And time to pay arrangements
To HMRC’s information about budget
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.