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Tax bills for self-employed deferred for up to 12 months

What does this mean for you?

Louis Baker, Partner, Head of Professional Practices
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One of the main headlines from the Chancellor's statement on 24 September was that those who are self-employed would be able to defer their tax bills for up to another 12 months.

It is important to note a glossed over detail, which is that this facility is only available for those with liabilities of up to £30,000.

Much of the detail of the announcement is not yet clear and the HMRC website has not yet been updated for this deferral opportunity.

In the Winter Economy Plan, which outlines how the government will support jobs and the economy over the coming months, the Chancellor refers to taxpayers being able to 'secure a plan' to pay the tax over a 12 month period. However, monthly instalments will need to be made from February 2021 through to 31 January 2022, rather than the whole sum being deferred for 12 months.

The plan also refers to HMRC's self-service 'Time to Pay' facility without explaining what this 'self-service' facility is. We believe this is the budget payment option within the direct debit section of a taxpayers HMRC online account, where a weekly/monthly direct debit can be set up.

Partners who use advisors to assist them in their tax affairs are unlikely to have set up personal online accounts with HMRC. Advisors are unable to access their client’s HMRC online account and clients will therefore have to go through the rigmarole of setting up an account or use HMRC’s Time to Pay Self-Assessment helpline to agree a payment plan.

What does this mean for Partners in professional firms?

Partners need to be aware that their liability is not being reduced, it is merely a deferral opportunity. Their tax will still need to be paid, as will their next instalments on 31 July 2021 and 31 January 2022.

Many firms that retain tax reserves on behalf of their Partners took the view that they would make the 31 July 2020 tax payment on its normal due date, rather than taking any deferral opportunity. This was often to ensure that Partners’ personal liability positions were protected. Similar considerations will apply with this further deferral opportunity at 31 January 2021.

You may recall that there was some concern in the summer that HMRC was giving an inconsistent message as to whether tax deferral was only available to those whose ability to pay their tax on 31 July 2020 was impacted by the financial consequences of the COVID-19 pandemic.

Although this further deferral opportunity has been announced by the Chancellor as part of the government's continuing response to COVID-19 and its effect on the economy, there is no caveat in the Chancellor's statement that the deferral opportunity is only available to those who can demonstrate an inability to pay tax on time due to the economic impact of the pandemic.

Earlier in September HMRC had started writing to those who had not settled their 31 July 2019/20 second instalment to advise that it had been automatically deferred and needed to be paid by 31 January 2021. As the HMRC letters were written before the Chancellor’s statement last week they make no reference to his statement and the fresh deferral opportunity for those whose liabilities at 31 January will be less than £30,000.

Further information

For more information on the issues discussed in this article or to discuss you individual circumstances in more details please get in touch with your usual Crowe contact.

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Louis Baker
Louis Baker
Head of Professional Practices