Budgeting for January 2021 tax liabilities
As we are fast approaching the deadline for 2019/20 Self Assessment tax returns to be filed and self assessment tax liabilities to be settled in January 2021 there may be an extra amount to be taken into account if you availed yourself of the option to defer the July 2020 tax payment on account due to having been affected financially due to COVID.
Personal finances may be constrained due to various issues such as a reduction in outside earnings or practice cash flow issues due to certain income streams reducing. If this has been identified as a cashflow issue by practice managers there may have been a reduction in drawings to ensure working capital is maintained. This may have resulted in less available money to pay your tax bill in January.
Therefore early notice of your 31 January 2021 tax liabilities is vital to ensure you have enough in the bank (either personal if you pay it yourself or the practice bank account if this is paid via the practice) to settle the July 2020 payment on account and the January 2021 balancing payment for 2019/20 and the first payment on account for 2020/21 which will also be due in January 2021.
However a lifeline has been offered if individuals are experiencing financial difficulties due to the COVID-19 pandemic with Self Assessment customers being able to apply online for additional support to help spread the cost of their tax bill into monthly payments without the need to call HM Revenue and Customs (HMRC).
HMRC have said:
The online payment plan service can already be used to set up instalment arrangements for paying tax liabilities up to £10,000. From 1 October 2020, HMRC has increased the threshold to £30,000 for Self Assessment customers, to help ease any potential financial burden they may be experiencing due to the coronavirus pandemic.
The increased self-serve Time to Pay limit of £30,000 follows the Chancellor of the Exchequer’s announcement on 24 September to increase support for businesses and individuals through the uncertain months ahead.
As part of his speech, the Chancellor announced that Self Assessment customers could pay their deferred payment on account bill from July 2020, any outstanding tax owed for 2019 to 2020 and their first payment on account bill for this current tax year in monthly instalments, up to 12 months, via this self-serve tool. Customers who need longer than 12 months to settle their tax liabilities are invited to contact HMRC in the usual way.
Customers who wish to set up their own self-serve Time to Pay arrangements must meet the following requirements:
- they need to have no:
- outstanding tax returns
- other tax debts
- other HMRC payment plans set up
- the debt needs to be between £32 and £30,000
- the payment plan needs to be set up no later than 60 days after the due date of a debt
Customers using self-serve Time to Pay will be required to pay any interest on the tax owed. Interest will be applied to any outstanding balance from 1 February 2021.
If your Self Assessment debts are over £30,000, or you need longer than 12 months to pay your debt in full, you may still be able to set up a Time to Pay arrangement by calling the Self Assessment Payment Helpline.
If you anticipate that profits have reduced in the 2020/21 tax year please contact us to consider reducing your 2020/21 payments on account due January and July 2021. We can prepare draft calculations to estimate your 2020/21 tax liability. Fees will be available on request.