We are seeing an increasing number of queries from our clients who would like to understand what the consequences may be if they deferred tax payments and what options may be available to them and their business to manage their taxation liabilities in the current climate.
This is becoming even more important as employers look to ensure the welfare of their people, with many people working remotely and having less access to the day- to-day office information which they may normally have to hand.
We have set out below an overview of:
The government announced a VAT payment deferral for liabilities due between 20 March 2020 and 30 June 2020. Businesses that deferred VAT payments for this period can do so until 31 January 2022. See our insight When to pay VAT which was deferred due to COVID 19 for further details.
The government has announced a deferral until 31 January 2021 for the self-employed.
For corporation tax, HMRC will not start chasing for payment until a tax return has been submitted. It is at this point that HMRC will have information about the tax which is due and HMRC’s Collector of Taxes will normally, assuming the tax payment date deadline has been reached, start to seek to collect any unpaid tax which is due.
For VAT and PAYE/NIC late payments, HMRC will seek to chase soon after monthly or quarterly deadlines have been missed.
Delaying submitting your corporate tax return may provide a short reprieve from being chased by the Collector of Taxes for outstanding tax. However, it should be borne in mind that non-submission of tax returns on time can ordinarily lead to late filing penalties being imposed by HMRC and may be taken into account when HMRC consider a taxpayer’s general tax compliance record.
Additional late payment penalties
The above penalties apply for all monthly, quarterly or annual PAYE, CIS deductions and Class 1 NIC.
For annual payments such as employers’ Class 1A and Class 1B NICs, the additional late penalties noted above will apply after the due date with a 5% penalty being charged at 30 days, six months and 12 months.
In these difficult times, businesses may wish to consider whether late payment of their tax in the short-term, represents a cost effective funding option when compared to their other borrowing costs.
As noted above, large and very large companies make corporation tax payments by way of quarterly instalment payments.
Each instalment payment should be based on the expected taxable profit outturn for the full accounting period, with each instalment based on the revised expectation at that point in time. For example, by the third instalment date, 75% of the company’s tax due should have been paid based on the expected full year results.
Where taxable profits are predicted to be lower as a consequence of events, such as COVID-19, then future quarterly instalment payments should be scaled back accordingly. Whereas, in the unlikely event profits are expected to be higher, then future payments should ‘top-up’ the current position.
If companies believe that they have now overpaid quarterly instalment payments based on their new revised full year projects then they can contact HMRC to seek a tax refund of the overpaid tax.
Delaying tax filings and payments is an option that a number of businesses are considering. However, as noted above, there are various penalties and additional interest costs which can arise as a consequence of taking this action, although for some, the interest cost, particularly for corporation tax payments, may be considered a good short term funding option when considered against their other costs.
For any further help and assistance for your business, please do contact your usual Crowe contact.