We are seeing an increasing number of queries from our clients who would like to understand what the tax risks and 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 economic climate.
This is becoming even more important as employers look to ensure the welfare of their people, with many people continuing to work 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:
In early 2021 HMRC gave businesses the option to extend the period to repay VAT postponed under the COVID VAT deferral scheme. If an organisation deferred VAT between 20 March 2020 and 30 June 2020 and still had payments to make, instead of paying the full amount by the end of March 2021, businesses could choose to repay the VAT with up to 11 equal monthly instalments. The extended repayment period concluded at end of January 2022 with businesses needing to ensure that all repayments were made within this timeframe.
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, then future quarterly instalment payments should be scaled back accordingly. Whereas, in the event that 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.
A time to pay arrangement is an agreement with HMRC to enable tax payments to be spread over a longer period of time than would otherwise be available and is often used for arrears of VAT, PAYE and corporation tax.
By approaching HMRC in advance of when payments are due, late payment penalties can sometimes be avoided, although late payment interest will normally still be applied.
Should it be decided that a more formal time to pay arrangement is therefore required then this can be arranged directly with HMRC by calling their Payment Support Service. The number is 0300 200 3822. To access this service details of the tax reference numbers for each tax to be discussed will be required.
However, in our experience, how the application is presented to HMRC can make a large difference to the outcome, as HMRC will want to be able to satisfy themselves as to when the tax will paid and that the business is not seeking to deliberately avoid meeting its tax liabilities. Having a good historic payment record can therefore also be important.
If the agreed payments are not made in full and on time, then HMRC can cancel the time to pay arrangement and seek immediate payment of the total outstanding debt. In addition, penalties can be charged. Seeking professional advice throughout the time to pay arrangement process is therefore recommended.
For any further help and assistance for your business, please do contact your usual Crowe contact.